In my previous lesson, I outlined a way to help you quickly identify the strongest and weakest sectors of the market. You will recall that stocks usually move in groups. So, by trading stocks in the strongest and weakest sectors of the market, you increase the probability of a successful trade. In this lesson, I will go a step further and show you how you can utilize the tools right here at TM to help find and analyze stocks for the next trading day.

Step 1. Go To The StockScanner

After you've identified the sectors you want to trade in, head over to the StockScanner.

1. In the upper right-hand corner in the "Sub Sector" field, scroll down and locate the sub-sector(s) that best corresponds with your sector of interest, e.g., the software sector ($GSO.X | Quote | Chart | News | PowerRating) (if you identified it as one of the weakest sectors). By eyeballing the chart, we see that the software sector is in a strong downtrend as represented by the -DMI being greater than the +DMI -- and that it's staging a countertrend rally. In this case, we select the "Applications Software" sub-sector. Bear in mind that this is only one sub-sector within the software sector and that you need to repeat this process for all the other software sub-sectors.
   
2. In the "Closing Price" field, enter "20" in the first box. The higher the price, the better. It's a lot easier for a higher-priced stock to move several points than a lower priced issue.
   
3. In the "50-day average volume" field, enter "2500." This will give you stocks that traded at least 250K shares for the last 50 days. This will ensure adequate liquidity.
   
4. In the "DMI" field, select "Down." Since we are looking for short candidates, we want stocks that are in a downtrend. If you are looking for long candidates, simply change the DMI to "Up."
   
5. In the "RS3" field, enter "1" in the first box and "25" in the second. This will give you the bottom 25% stocks. If you were looking for long candidates, enter a "75" in the first box and leave the second one blank. This will give the top 25% best-performing stocks.
   

Step 2. Go To The "News & Charts" Page

1. Staying within the Stocks section, click on "News & Charts" in the upper right-hand corner of your screen.
   

2. Click on "My Watch List." Your default Watchlist will contain three symbols: Dow Jones Industrial Average ($INDU | Quote | Chart | News | PowerRating), S&P 500 ($SPX | Quote | Chart | News | PowerRating), and Nasdaq Composite ($COMPX | Quote | Chart | News | PowerRating). Here, you can begin to build your new Watchlists from the results of your scans. Click on "New Watchlist." A pop-up box will appear, prompting you to enter a name. Simply give it a name and click "OK." For example, you can call this one "Software Weak."
   

3. Input the symbols from the results of your scan into your new Watchlist. Separate each symbol with a space. Repeat if necessary, to create other Watchlists.
   
   
   
   
   
   

4. Now it's time to set up your charts. Select "Snap Charts" or "Java Charts" on the left side of your screen to begin analyzing each chart. Snap Charts are html charts that need to be refreshed each time you make a change to the chart, whereas Java Charts come up almost like a separate application. I prefer Java Charts because they are faster, more user-friendly, easy to customize, and you can draw trendlines. In addition, you can even e-mail someone a particular chart of interest. Both charting features will automatically store all of the stocks that are in your Watchlists.
   
5. Once in Java Charts, double click on "My Charts" in the upper left hand corner. Inside you will find all of the stocks that are in your Watchlists. Simply double-click on a symbol to bring up a chart.
   
6. In the lower left hand corner, click "detach" to put the chart in a separate window, whereby you can adjust the size of the chart.
   

7. Then it's time to build your technical analysis template. Under the "Tools" pulldown menu, select "Customize Studies." I'm a big Dave Landry fan, so Bow Ties are a must. In order to create your customized template, add the technical studies that you want and adjust the parameters to your desires. Repeat if necessary to create other study templates.
   
   
   

Step 3. Analysis

Everyone like to focus on trades that have a high probability of success. With that in mind, I like to look for two particular kinds of setups:

1. Pullbacks -- Pullbacks from highs and countertrend rallies from lows are the bread-and-butter swing trade setups. There is nothing fancy about them, they are logical, and they work. I mean, how else is a stock going to go higher except by taking out its prior high? Vice versa for shorts.

b. Triangles -- Triangles are another high-probability pattern. When prices go into consolidation, eventually one side will win. They can be subjective at times, but the results speak for themselves.

Step 4. Keeping Up With The Stats

During the market day, many key events are taking place. You can use the "Market Hotspots" section to keep tabs on what's happening. Here are some things you should keep your eyes on:

1. Volume -- Markets need fuel to move, and volume is that fuel. Visit the "Market Stats" page throughout the market day, especially the first half of trading, to identify big moving days.

2. 52-week highs and lows -- Go to the "Top Stocks" section and under the Category pulldown menu, look at who is making new yearly highs and lows throughout the market day. In times of weak markets, look at who is making new 52-week highs. These are that stocks that are saying, "I don't care about the market, I'm going higher." And in times of strong markets, look at who is making 52-week new lows, as these are the dogs of the market and could be potential short setups.

3. Dollar Gainers and Losers -- These are the stocks that are the best and worst performers during the day. The Dollar Gainers and Losers lists give you a better representation of what's moving the markets. Many times, there is significant news behind the moves, and you can read up on what's happening by visiting the "News & Charts" section.

Summary

This lesson just provides an outline of how you can get more out of our site with tools such as the Stock Scanner, News & Charts and Market Hotspots to help you find and analyze stocks for the next trading day. Feel free to tailor it to your specific needs.

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