Here's A Nightly Plan To Improve Your Trading

Profiting From TradingMarkets

In this week's BattlePlan, I'm going to share with you a daily plan to help you improve your trading using the indicators and education found on our site. The following was originally published on the site in TM University and we have updated it for your use. As you likely know, there are over 32,000 pages of information on TradingMarkets, making it the largest source of trading information and education found on the internet. Obviously, it's a challenge to get through the entire site and absorb all its information. For the past three years I've presented various ways to help you around the site and I thought this particular article would be of benefit to many.

Here Is A Nightly Plan For You To Follow

Each evening, you should use the TradingMarkets indicators to:

• Get a handle on the short-term direction of the overall market.
• Find the best stocks in the best sectors and the weakest stocks in the worst sectors. 

Here is a game plan which will enable you to do this. 

Step 1. Short-term Directional Bias of the Markets. To find out what direction the overall market is poised to move in:

1. Click to the Market Bias Indicators to determine if there is a short-term directional bias. Two or more Connors VIX Reversal (CVR) signals both pointing in the same direction will suggest a higher probability of a sharp short-term move. The more signals you find with a directional bias, the stronger this probability is. A combination that includes CVR I and CVR III is especially favorable. Also watch for agreement among the secondary market-timing indicators: the McClellan Oscillator, CHADTP and TRIN Thrust. Note that you should place more weight on the signals from the Market Bias Indicators than the more subjective interpretations from 1b, 1c and 1d.
   
    
2. Go to the Tools And Research page and pull up charts of the major indices to determine the short- and long-term trend of the market. Make a note of the trend of the S&P 500 ($SPX) and the Nasdaq Composite ($COMPX) over the past seven days. A strongly trending market may tell you to have more of a directional bias in your trading.
   
    
3. Zoom in to a three-day period and change the time frame to five-minute bars. Identify the key support and resistance levels and any intraday trends that may extend into the next day's trading. 
   
    
4. Evaluate how the market closed today, paying close attention to the final hour of trading. The momentum of strong closes near the top of the daily trading range or weak closes near the bottom of the trading range may carry forward into the next trading day. 

Step 2. Strongest and Weakest Sectors

Find out what the strongest and weakest industry groups are. As much as 70% of an individual stock's movement is tied to the industry group to which it belongs. Therefore, ideally you want to be long in a stock in a strong industry group and short in a stock in a weak industry group.

1. Check the Strongest Sectors of the Past 5 Days and the Weakest Sectors of the Past Five Days.  Also, go to the Funds Section and look at the top one-week, one-month and three-month RS Exchange Traded Funds and the Bottom one-week, one-month and three-month Exchange Traded Funds. Since these lists contain international ETFs, you'll have to ignore those. Focus on charts of the strong and weak stock industry groups. 
   
    
2. Determine which groups are strongest and which are weakest. As you proceed to Step 3, you should be able to see stocks within these groups as major "themes" in the Indicator Lists. More about this concept in Step 3.

Step 3. Finding Stocks -- Indicator Lists

Create your pool of stock candidates. To do this, go to the Indicators page. If the market has a short-term bias to the upside, focus on longs. If to the downside, focus on shorts.

An important point on themes: While the main purpose of going through the stock indicator lists is to find good trading candidates, you must watch for themes and dominant sectors. When looking at the stocks within the lists, pay close attention to whether many of the strongest or weakest stocks belong to the same or related industry groups. Do these industry groups match those that were found in your sector analysis in Step 2? If so, that serves to corroborate your big-picture analysis. A good sign.

Here are good places to start your search:

1. To find buy candidates with powerful trends and high short-term relative strength, run through all the stocks in the Proprietary Momentum List. For shorts, go through the Proprietary Implosion List. Click into and look at every chart in both daily and intraday time frames, confirming trend strength and looking for key intraday support and resistance levels where intraday setups may form the next day. Repeat this same process with the following lists:
   
   For Longs

    

   1. Pullbacks From Highs List
      
       
   2. New 60-Day Highs on Double-Volume
       

For Shorts
 

1. Pullbacks From Lows List
   
    
2. New 60-Day Lows on Double Volume List
    

2. To find stocks that have the potential to explode to the upside or downside, check all the stocks in the Explosion List. These are stocks which are trading at lower-than-normal volatility. Since volatility tends to revert to the mean, stocks such as these tend to explode. To find the stocks with a strong directional bias, not only should you look at the charts of the individual stocks, but you should also scan the columns that are displayed in the indicator's grid.
   
    
   1. For longs, look for stocks with high short-term relative strength, ADX readings over 30, and DMI indications that are "Up." 
      
       
   2. For shorts, look for stocks with low short-term relative strength, ADX readings over 30, and DMI indications that are "Down."

   
    

3. To find highly volatile stocks, go to the "Trading Where The Action Is" list. These stocks are the most volatile stocks of the past 50 days. Look at the charts and focus on those which are exhibiting big intraday swings. Also, as with 3b, check the indicator grid columns. 
   
    
   1. For longs, look for stocks with high short-term relative strength, ADX readings over 30, and DMI indications that are "Up." 
      
       
   2. For shorts, look for stocks with low short-term relative strength, ADX readings over 30, and DMI indications that are "Down."
       
4. For strong candidates that have pattern setups in the process of forming, check TM's Nightly Daytrader's Report. There you will find setups such Slim Jims, strong closes, and final-hour volume surges. 

Step 3a For Haggerty-Style Traders

Traders who have a working knowledge of Kevin Haggerty's daytrading strategies as taught in his "Trading With The Generals Course" will be able to find their trading candidates on the following screens. Click here to get an introductory overview of these indicators, but be sure to take Kevin's course in order to use these tools properly. 

1. S&P 500 Index Screen
   
    
2. Nasdaq 100 Index Screen
   
    
3. 3 Day Wake Up Call
   
    
4. Change in Direction

Step 4. Finding Stocks -- The Stock Scanner

You can also find trading candidates through the Stock Scanner. By specifying your own parameters, you can identify additional daytrading candidates on the long and short side that meet your own special criteria. Here is one set of parameters that will get you strongly trend stocks with high short-term relative strength, good liquidity, and good intraday moves. Feel free to tighten the parameters if this gets you too many candidates. But don't loosen the parameters. A lack of candidates may be indicative of a market that is best watched from the sidelines.

1. Closing price of 20 or higher. Higher-priced stocks tend to have greater intraday trading ranges.
   
    
2. 50-day average volume of 300,000 shares/day. This enables us to get the liquidity we need for easy entries and exits. 
   
    
3. ADX of 30 or greater. Along with an ADX of 30 or greater,  look for stocks with an "Up" DMI for longs and stocks with a "Down" DMI for shorts.
   
    
4. 3-month RS of 80 or higher for longs, and 3-month RS of 80 for shorts.

We've barely scratched the surface of what you can do with the Stock Scanner. 

Step 5: Tips On Knowing When And What To Trade

The obvious final step is to narrow the choices to the stocks which have the highest potential reward and the least potential for loss. Also, no matter how good the setups look, you need to decide whether it's appropriate to trade any of them, given other factors. Here is a checklist:

1. Do not trade counter to multiple market bias signals. For example, if all your stock candidates are to the long side, but you have three or more CVR down signals, it's better to focus on shorts or stay on the sidelines.
   
    
2. Check the news on the stocks you are considering trading. Many traders will be cautious or not trade in front of Fed announcements, earnings reports, or other types of major announcements. Surprises can work both for or against you.
   
    
3. Make sure that the buy candidates you are considering are in the strongest sectors or industry groups and that the shorting candidates are in the weaker groups.
   
    
4. Be cautious when your list doesn't contain very many names. When there aren't many buying candidates to choose from, it is a sign of overall market weakness. Remember that the market is made up of stocks. When many stocks are behaving well, there is a greater likelihood that the overall market is healthy.
   
   Wrap Up
   
   Hopefully this information helps you with your trading. Being able to identify the correct stocks at the correct time is a major factor in the overall success you'll achieve from trading. And beginning on Wednesday, August 11, our editor, Brice Wightman, and I will be writing a new weekly column teaching you how to further profit from TradingMarkets.
   
   Have a great week trading (and if you need any help with the above, e-mail me at lconnors@tradingmarkets.com.