Scanning vs. Concrete Watchlist for beginners

[vadimd]

Hi guys. I'm a beginner. I've read some books and started dabbling with some simulation trading. I'm using options on stocks and ETFs and leaning more towards swing/position trading using TA while being mindful of the fundamentals. I am still very confused as to which of the following two directions to take at this point.

1) Some recommend and stress that instead of jumping around, a beginner needs to create a watchlist of 6-10 stocks/ETFs and just follow them (study their fundamentals, chart patterns, setups and generally what makes them tick) and devise some sort of strategy. If that is the case should one just arbitrarily pick some liquid, high volume trading stocks from 1-2 industries that he/she is interested in or are there other criteria that factor in?

2) Others are advising that one should always be scanning for for new stocks that are outperforming the market or find themselves in the breakout stage or some specific optimal setups.

I would very much appreciate your insights.

 

[Rhody Trader]

Which way you go really depends on your trading methodology and how many trading opportunities it produces in your given time frame. If it produces a lot of opportunities in a handful of stocks, then being focused narrowly makes sense. If, however, it only gives you maybe one signal a year or something like that, then you need to go the screener route.

 

[PollyM]

I recall a line from Dr Alexander Elder's Come Into My Trading Room, in which he believed that some experienced traders choose only a very small handful, possibly even one market to trade. Not sure of the page number for this as it's been a while since I read the book.

One large smooth market will tell you everything you need you know if you give if time. Choose a system and watch your chosen market move, setting stops as you go.

You can always run this one market in the background while you learn other trading techniques.

There's a link below to a thread which has an open source charting platform that you can use and modify as you wish. It's in Excel format, but will also run in OpenOffice. The whole thread will also give you some background information as to method.

If you need any further guidance then please post. There are many here to help.

 

[malaguti]

Hi guys. I'm a beginner. I've read some books and started dabbling with some simulation trading. I'm using options on stocks and ETFs and leaning more towards swing/position trading using TA while being mindful of the fundamentals. I am still very confused as to which of the following two directions to take at this point.

1) Some recommend and stress that instead of jumping around, a beginner needs to create a watchlist of 6-10 stocks/ETFs and just follow them (study their fundamentals, chart patterns, setups and generally what makes them tick) and devise some sort of strategy. If that is the case should one just arbitrarily pick some liquid, high volume trading stocks from 1-2 industries that he/she is interested in or are there other criteria that factor in?

2) Others are advising that one should always be scanning for for new stocks that are outperforming the market or find themselves in the breakout stage or some specific optimal setups.

I would very much appreciate your insights.

At the moment I'm just trading 1 instrument. I have numerous setups, across all timeframes on just this one. You dont need a scan. I once thhought I did, and it would scan indicator vaues etc. Thats when I thought I needed indicators to trade with. When you can get away from that flawed mentality and truly realise that indicators don't help at all, then my trading has become so much more successful.
Hope this helps you

 

[SlowlyButSurely]

Im with Rhody Trader on this, it completely depends on your trading style and method. When i started out i was scalping and focused solely on GBP/USD in order to get in tune with it and be able to spot patterns, and to an extent it worked. When scalping i had little time to watch several markets and the cable gave me more than enough movement per day to make money

Now however i have moved to a swing trading style which gives me less opportunities but higher probabilities. As trades can take over a week to develop i have a lot of free time to study various markets. You mention you are a swing/position trader so i think that you should be able to do likewise, then again it will depend on ur system.

 

[0007]

Agree with Rhody Trader. My refinemnent is that once you know what you're looking for then a scanner is an extremely useful piece of kit. If you know what you're looking for then it's also likely that you'll know what instruments will be of interest to you -- so you end up looking for what you know will be of interest in a pile that you know you're interested in. If you can get yourself to this stage you have the potential to become very profitable.

 

[vadimd]

Many thanks for all your responses.

I’ve only recently started so I don’t yet really have a set “method/strategy”. I imagine that will take time. I’m just currently trying to expose myself to what is out there, filter the concepts that makes sense to me, read more and go through the motions so that I can get a feel for the market and the process, and slowly shape some sort of strategy along the way. So for these early educational purposes and so that I can continue to put some simulation trades through (until I will have raised enough capital to trade with) what would be the most conducive approach?

I have read Elder's book and on some level I feel like it would make sense to only follow a small number of stocks and increase that number over time (as I agree that with swing/position trading there probably aren't as many opportunities and trades take longer to develop). But if so, how would I go about choosing that handful of stocks/markets.

I guess the question is, if you were at the initial stages of your trading “journey”, had decided to swing trade using options what approach would you take/do differently so as to develop the right skills, perspectives, habits. (Sometimes I’m not even sure I’m asking the right questions).

 

[rawrschach]

doesn't really matter

do both, see what you like. what works for me won't for you and vice versa.

you're not gonna make any money for a long time

 

[SlowlyButSurely]

I said I was a swing trader but started off scalping and will say this; If you are starting out and dont have any sort of approach or system yet then try your hand at several ways and see what makes the most sense.

At this stage it might be good to watch the major indices on the daily time frame and see how it behaves at certain price levels. Then go through the major stocks of that index and see how it performed that day and see if there is major correlation. EG afaik the FTSE100 is influenced largely by energy stocks (Rio, Shell, BP etc).

Doing this should give you a fair insight into markets and at the same time do some research into different trading styles and see what makes sense.

As many will tell you, there is no one 'right' way to trade.

Good luck
SBS

 

[PollyM]

Many thanks for all your responses.

I’ve only recently started so I don’t yet really have a set “method/strategy”. I imagine that will take time. I’m just currently trying to expose myself to what is out there, filter the concepts that makes sense to me, read more and go through the motions so that I can get a feel for the market and the process, and slowly shape some sort of strategy along the way. So for these early educational purposes and so that I can continue to put some simulation trades through (until I will have raised enough capital to trade with) what would be the most conducive approach?

I have read Elder's book and on some level I feel like it would make sense to only follow a small number of stocks and increase that number over time (as I agree that with swing/position trading there probably aren't as many opportunities and trades take longer to develop). But if so, how would I go about choosing that handful of stocks/markets.

I guess the question is, if you were at the initial stages of your trading “journey”, had decided to swing trade using options what approach would you take/do differently so as to develop the right skills, perspectives, habits. (Sometimes I’m not even sure I’m asking the right questions).

vadimd

You're asking very valid questions, and look to be taking a very balanced approach in your learning.

The often stated belief that beginners will not profit in the early stages is based on every trader having to re-invent the wheel, so to speak, trying the find the 'common sense' amongst the very fragmented trading resources that are available. It's kind of like doing a 1000+ piece jigsaw puzzle without having the box with the picture on it (and also not knowing if you have every piece!). It does not however have to be this way.

In choosing your market or small handful of markets to trade it is a good idea to look at the largest smoothest ones, for example, indices. In the beginning you really need to practice consistency in process, but also know that the method you are using is an overall profit generator, so that you can have the confidence in its constant application. You are essentially looking to make the process of calculating and adjusting orders/stops a subconscious activity, so that you can minimise the amount of thought involved. Thought triggers emotions, and it is emotions which more often than not will throw you off course.

You can try doing several things in parallel so that you can compare across the board. For example, whilst reading around and applying other methods and approaches, you can in the background run the INDE spreadsheet on daily prices but at a very low accumulation factor, so that you can pick out the relatively short term swings. Any number above 1 can be applied, even 1.1, you are not limited to integers. At this setting you may find that some outside days will catch you out, but in the overall scheme of things their impact is limited, and you may even look to modify the spreadsheet or accumulation factor to allow for these as you become more confident in your trading.

Keep asking any questions you may feel timely.

 

[vadimd]

Ok. appreciate all the input. gonna keep plowing.

 

[barjon]

vadimd

You can chose to get to know a couple of instruments like the back of your hand and trade them with a range of set-ups, or you can get to know a couple of set-ups like the back of your hand and trade them across a range of instruments.

I think that each instrument has its own characteristics and getting to know and understand those is the better bet.

 

[Templar42]

I'm not sure how true it is of other markets, but I found it instructive to look at the typical daily volatility of FTSE 100 equities when picking stocks to add to my short-term trading watchlist. Only a small minority experienced the degree of daily price variation that I was looking for on a regular basis. However, it was difficult to tell this from the various website 'stock screeners'. I found it useful to import Google finance data (via the 'import text file' functionality in Excel) into a spreadsheet of my own containing basic tests of that equity's typical behaviour over a given length of time - average daily price change, median volume (to screen out those that are too thinly traded), even the frequency with which the equity would rise or fall for two or more days in a row. Just a possible method! Google is rather convenient for free historical daily data on equities, and there's a standard URL for importing a .csv file.