Screening and Selecting

Swing and Momentum Stock

Candidates
- How to find daily and longer-term trading candidates quickly
- How to screen them
- Strategies for trading them
How to find daily and longer-term trading
candidates quickly
• Today, I’m focusing mainly on two types of trading candidates:
1. Short term (2-3 day) trading candidates
2. Longer term (a few days to a few weeks) trading candidates
• The main screening tool we are using:
https://www.tradingview.com/screener/ (Free)
• Tradingview’s screener is somewhat limited, but it’s still the best
available that I know of for the Malaysian stock market.
• By screening for very specific things, we can identify not just
candidates but also market conditions.
Screening Filters
• 5 EMA: This is essentially the faster move. The 5 is used because we want
relatively quick moves.
• 20 EMA: Usually, the slower moving average will be 3-6 x the faster one. In
this case, we use 20 because that is what the screener has available.
• Volume: Average (30 day) volume > 500K. You can adjust this to make it a
bit higher (e.g. >1M), but probably not much lower. This will save you time
if you want to be stricter with screening only high liquidity stocks that will
give you less trouble getting in and out.
- There are several volume options. You can experiment with using
different ones, but this is the one I use.
• Time interval: Once you save your filter preferences, you can apply the
same filter to different timeframes. This is very useful, as you will see. You
can apply the same concepts to discover trading candidates on different
timeframes.
Screening Conditions – We are Primarily
Interested in the Short Term Bullish Condition
Some Comments on the Market Conditions
• We can actually make use of the contrast between different parts of
the trend diamond to gauge the bullishness and bearishness of the
market.
• For example, the bullish market condition is P > 5 > 20. The bearish
market condition is P < 5 < 20. We can compare the number of stocks
in the bullish versus the bearish screen.
• In a very simple gauge of market bullishness/bearishness, we can
outright use P > 20 versus P < 20 as a gauge.
• This is not directly relevant to what we’re discussing, but it helps you
get an idea of market breadth.
267 Down versus 76 Up: Bearish Market Breadth
P > 20 EMA versus P < 20 EMA = General Market
Breadth (Non-momentum Filtered)
The Usual Market Breadth Conditions Apply
• Clearly, in bearish market conditions, the probability of trades
working out is reduced.
• So, you have to take that into consideration when applying the trade
filter conditions.
• Okay, so much for the introductions. Now, we can look at the filters
and screens.
High Momentum Daily Screen Settings
• Common stock
• 5 EMA < P
• 20 EMA < 5 EMA
• 20 SMA < P
• Average volume (30) > 500K
Some General Comments on Daily Screens
• You are looking for about a 10% swing from the pullback to the top.
• Depending on the trigger you use, you will not be able to get in at the
very bottom unless you are very aggressive.
• We will look at the screen, and then some examples of entering using
trendlines.
Screening the Trading Candidates
• You want to do the following:
- Screen out:
Low liquidity stocks with weird looking candlesticks.
Stocks that pulled back with very large red candlesticks.
Stocks that pulled back on high volume.
Stocks that have already begun to rally and you are too late. (More than 1 day of
rally.)
Stocks that are in a range.
- Watchlist: Put stocks that are racing upwards but not showing any signs of
pullback OR are just beginning to pullback (day 1 or so) on your watchlist.
Pullbacks on divergence (volume or other divergence) are less attractive.
- Trading list: Put stocks that have pulled back to the Cloud on the trading list. (If
you want access to the Cloud, WhatsApp me your TradingView username before
the end of today.)
• To make your life easier, order the screening list from the largest pullback
candidates to the smallest, so that you will get those stocks in pullback first.
Notes on Trendline Setups
• Draw them on candlestick bodies on the 15-minute chart.
• Enter when they are broken on a closing basis.
• Do not take trendline breaks that are too steep (greater than 45
degrees). Wait for divergence or a slowing price.
• Trendlines need to be updated if price accelerates.
• Watch the daily chart as well, and do not take trades once the Cloud
has been decisively broken.
• Stop loss should be below the low on the 15-minute chart. Trail up on
each swing.
• Watch the 10% swing level as the profit taking level. Do not enter if
your signal is too late.
Questions?
On to Swing Trading
• Swing trading is a slightly different situation. We’re looking for deeper
pullbacks that will create a rectangle consolation pattern.
• Rather than the usual 10% or so swing that we are trying to catch
from the daily quick patterns, we are aiming for 20% or more from
these.
• This consolidation provides a place for us to develop a trade from.
• Unlike the short term momentum setups, these require some abilities
in pattern recognition, because the screens will not be able to identify
the ideal rectangle pattern. Thus, we have to do it by eye. The filter
just makes it easier by reducing the number of candidates.
• Ideally, you want a consolidation pattern where you can enter from
the bottom.
The Rectangle Happens in the Warning Area
Swing Trading Screen Filter
Swing Trading Weekly Screen Settings
• Common stock
• 5 EMA > Price
• 20 SMA < Price
• 20 EMA < 5 EMA
• Average volume (10 day) > 500K

• Run this weekly to find trading candidates. Don’t expect many to

appear. This is not a screen that produces a lot of opportunities. The
idea here is to get a home run move.
Some General Notes on the Weekly Screen
• You may have to wait weeks with stocks on your watchlist before they
mature into proper setups.
• However, the point here is not to get a lot of trades, but rather good
reward-for-risk ones.
• By their nature, the stop losses on these will be larger, but they also
require less trade management.
Screening the Trading Candidates
• You want to screen out the following:
Screen out:
- Stocks with low liquidity and weird candlesticks.
- Stocks that are pulling back without a strong flagpole.
- Consolidations that go significantly lower the bottom band of the
(50, 1) Bollinger.
A Discussion of Support Levels
• You can use the horizontal support levels that you are used to in
anticipating where the rectangle will form.
• I personally prefer to use the (50,1) Bollinger to identify potential
areas of support.
• If it breaks the lower Bollinger by too much, I will consider that the
trend has turned and will not consider this a rectangle trading
candidate.
• This is not a discussion of how I gauge momentum, but the
Forecasting class people should be familiar with this process.
To Summarise
• We have looked at two screens today:
- Daily momentum screen
- Weekly rectangle screen
• The daily setup is clearly easier to identify, because it is higher momentum. It is actually
possible to run the daily screen on the weekly and acquire more trading candidates.
• The weekly setup is trickier to find, as you can see. Finding an optimal setup is much
harder. However, if it managed to break out of a consolidation and head towards a new
high, you would have an excellent reward-for-risk trade. The percentage gain is also a
factor in the calculations, obviously. However, any good reward-for-risk setup will be
reasonable for a trade.
• Bear in mind the overall market breadth as well when doing this. Particularly in the case
of daily screens, the probability will drop during bearish market breadth periods.
• You can use the same general concept for whatever type of momentum trading system
you prefer. I tend to use more indicator-based and precalculated support and resistance.
• Again, if you wish to have access to the Cloud, you need to let me know. The Bollinger is
openly available on TradingView. Simply adjust it to my settings.