Profiting From TradingMarkets: How To Use Kevin Haggerty's Favorite Screens

Editor's Note-

Each Wednesday we feature an article which shows your how to use TradingMarkets. This gem from Kevin Haggerty will show you how to use the lists he created and uses every day. If you have any questions, feel free to e-mail me.

Brice

This lesson will educate you on how to use the two new index screens and two stock-specific screens that are now posted on the site. They can be accessed at the bottom of my text page.

These screens will enhance your trading research and assist you on your entry/exit decisions for intermediate and long-term position trading.

The primary purpose of the screens is to identify the buying or selling pressure in specific stocks, groups and sectors. This trading research will uncover the trail of the Generals as they start to get involved. It will help you find excellent trading setups in stocks that have changed direction or are about to have a significant move.

Keypoint I

Buying pressure (sells reversed) is evident when you get an increase in force and volume accompanied by range expansion, a close above the midpoint and preferably in the top of the range. It is also more significant if the closing price reverses previous closes and highs.

Prior to a reversal in a trend, you will often see a narrowing of range with a significant increase in volume and little change in price as the trend in price is about to change.

Keypoint II

The daily close is very significant when selecting your stocks and analyzing a stock's action. When an uptrending stock is coming under distribution or selling pressure, the daily close will be at or near the bottom of the daily range each day, even though the closing price might be up on the day (reverse for buys).

The four screens are as follows:

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

The Generals operate within the universe of the S&P 500 and NDX 100 for their primary positions. These are the big-cap stocks that have liquidity and earnings. These are also the stocks that are involved in the major program trading situations which will often accelerate a stock.

Institutions control the markets so it makes sense for traders to focus on these stocks and let the Generals do the research. We, as traders, can follow the Generals as they determine direction with their money and we identify when to get on board by anticipating the buying and selling pressure.

The "Wake Up Call" and "Direction" screens are stock-specific screens of the stocks in the S&P 500 and NDX 100.

Screen Overview and Thought Process

Before I start, pull up the S&P 500 or NDX 100 screen on the site, as it will be easier to follow along. Both screens have the same format.

The index screens default to a sorting by the volume in relation to a percentage of the 30-day average daily volume. They can also be sorted by percentage change and where the stock closed in its range which is the CR1 column. The CR2 column gives you the preceding day to CR1. You can get the column definitions by clicking on the link above the screen.

My actual sequence of checking these screens each morning is as follows:

1. Sort by the CR1 column This shows me what the buying and selling pressure is for all the stocks in the Index. I want to know if the majority of stocks finished above or below the midpoint of their daily range. I look to see if a specific group or sector stood out with closes in the top of the range. I look at this column first, because it is the fastest way to observe the overall market dynamics from yesterday's action and this helps anticipate today's activity.
   
   
2. I then sort by Pct Change to observe the price persistence both ways. The Generals speak with their money and this is the final score. You should be thinking about whether it is stock-specific or was it across-the-board buying and selling? I want to see if all the group or sector was involved in the move. After the first two sorts, which should be no more than five minutes, I have an excellent picture of where the Generals spent some money and what I should focus on today, anticipating continuation of the move. At this point, I have yet to bring up a chart.
   
   
3. The final sort and the one I work from is the Pct 30D Vol column. This enables me to start my search with those stocks that indicate the Generals showed up in size. I look for buy setups first. Starting with the increase in volume, I then check the CR1 column for the range close and look for 75 or over, which means a close in the top 25% of the range.
   
   
4. Next I check the range column (Rng) looking for expansion or narrowing of range relative to the 10-day average daily range which is the next column to the right. I look to see if the stock advanced or declined on the day. Stocks that have declined slightly on the day but have expansion of range, increased volume and a close in the top 25% of the range can be great setups. They might have tested any of the 20-, 50- or 200-EMAs or maybe a Fibonacci RT level and this brought in a surge of buying. Remember, the Generals love to buy pullbacks in uptrends and vice versa in downtrends.
   
   
5. Next, I check the 5D%Chg and 20D%Chg column to see whether it's a new move or a continuation that might be overbought or oversold.
   
   
6. The selection process then moves to the 20-, 50- and 200-EMAs. The strongest trending stocks will be above all three EMAs. After I check the stocks above all three EMAs, I drop to the next level of above the 50- and 200-EMA, etc.
   
   
7. Finally, I check the 52W columns to see whether the stock is under-loved and oversold or extended and overbought based on its 52W%Chg. You then look at the 52-week high and low prices. Many explosive trades come from setups 5%-10% below 52-week highs and become even more desirable if just below 3-5 year highs.

As you go through the screening process, you are hitting up your daily charts to see if it's a high-probability pattern setups.


"3 Day Wake Up Call"

This screen, along with the "Change In Direction" screen, should be used in conjunction with the Index screens.

The 3 Day Wake Up Call screen identifies those big-cap stocks that have closed above the previous two days' highs, have the largest daily range and most volume of the three days. This screen will give you stocks that show some thrust with expansion of range and volume, or have just broken out of a consolidation. Volume will usually precede price and this is one way of seeing the Generals coming.

"Change In Direction"

This is an excellent screen to pick up those stocks that have pulled back to make at least a five-day low, followed by a Change in Direction day which is a higher high, higher low and a close above the high of the low day. This will identify those stocks that have just made a swingpoint low or high. It can also pick up those stocks that have had a longer decline or advance and might be reversing the trend.

Chart Examples

As you use the screens for your trading research, your trade selection will improve immediately and you will realize that the dynamics make the pattern and it's not just some lines drawn on the paper that you base your entries on.

If you only trade the S&P and Nasdaq futures, your trading will benefit from recognizing the daily dynamics of the stocks comprising the indexes.

On all of the following charts, the letter A is the actual screen day and your entry would follow that day.

The charts give you some different patterns from the screens. I only labeled the most recent screen selection (A) but as you can see, there are prior entries that were strong setups.

I strongly urge you to use these screens every day because you will be rewarded for your efforts. Going forward, I will be leading you from what I see on the daily screens and this should accelerate your curve.

Good trading!