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Archive for the ‘trading plan’ Category

Over the last few months I have been trying to find way to be more disciplined towards my trading as well as automating most of my analysis, calculations and stock selection activities. Some of my specific objectives are:

• Use a more systematic approach to select and filter stocks based on fundamentals
• Improve entry signal scanning
• Standardize my stock analysis by using the same tools repeatedly
• Mechanically decided on entries and exit points
• Streamline my positions and risk analysis tools

This is a long discussion and requires a number of posts but I want to present one of the tools I have been working for quite a while now, my Fundamental Stock Selector and Scoring Tool, or simply Stock Selector. The purpose of this tool is:

• Select, filter and score stocks based on fundamentals and basic technicals (not automated chart analysis)
• Maintain an updated list of Top Stocks based on fundamentals - which I will then track on a daily basis

I have done a preliminary scanning to find the Top Stocks based on my own screening critieria, which is mostly focused on finding Growth Stocks. At a high level, here are my filter and scoring parameters:

• Stocks trading above $ 10
• Volume above 150k per day
• Earnings per share > 0 (15%+ will achieve higher scores)
• Earnings per share during MRQ (Most Recent Quarter) higher then the same quarter a year ago
• Increasing earnings year over year

The first part of the tool (which was built in Excel) is called the Stock Score. This tool will output a “score” which quickly tells me about the stock health - please note this scored is based on my “own” critieria. The score varies from 0-90 and the higher the score the better. I will not trade any stocks with score below 60. Let’s look at two scenarios, one high score stock and another low score. When I type a stock symbol here’s what I get:

Goodness reflected on the chart

And now let’s look at a low scored stock;

pain reflected on the chart:

Scoring Multiple Stocks - here’s what the “alpha version look like” — these are the top scored Canadian (TSX only) stocks in my list:

Why do I bother with this “fundamental” stuff ? It’s just another edge to the technicals.

That’s it for tonight, long day at work and writing. Have a good working and trading day tomorrow.

This is another process that is part of my Trading Plan. Once I have my Universe-TSX and Universe-US watch lists in place I will scan the stocks inside this lists for technical signals. My scanning will be done using one or more of the following techniques:

• Visual Charts Scanning - this is where I will open a set of charts for each stock, look for patterns on the intermediate time frame (Daily) in my case and make annotations. My chart screen usually contain 4 charts of the same stock, a Daily (long duration), Daily (short duration), Weekly and 30 minutes. Here’s what the screen will look like:
  
  Some of the tools I will use for charts include my own Excel based tool which I call ExcelTA, QuoteTracker wich I currently subscribe and also Amibroker which I am also a registered user.
• Automated Scanning - Using software and sites I will scan my Universe watch lists for technical indicator events such as moving average crosses, MACD and others. Some of the tools I will use for automated scanning include Amibroker, WealthLab.com, E*Trade technical screener.

As described in my selection process, stocks displaying trading potential will be moved to my "Hot" watch list.

Removing Stocks from my Hot Watch List - I will perform a daily visual scan on the stocks inside my "Hot" list and if I see any candidates that are no longer considered tradeable I will remove it from the list. During this procedure I will also make decisions on stocks that I want to trade.

Selecting Candidates for Trading - Once I decided on the stocks I am considering opening a position, I will enter them into my Position Sizing Tool, which is also in Excel. This tool will allow me to make a decision on which stocks are more suitable for trading based on Risk X Reward comparison.

Stocks Selection based on Fundamentals - I am currently refining my trading plan and one of the areas I want to improve is my screening process for fundamentally sound TSX stocks. I want to find a tool that I can run regularly just so become brainless to maintain what I call a "stocks universe" — this is essentially my list of fundamentally strong candidates. I normally do nightly visual inspection of these stocks looking for chart patterns.

The steps in creating and maintaining my "Universe-TSX" watch list because I will have an "Universe-US" will be as follow:

1. Perform a weekly selection of the "Top 100" most fundamentally strong stocks in the TSX.
2. Replace existing list with the results from the previous step

Some of the screening options for TSX stocks are:

• TD Waterhouse stock screener - can be used for both Canada and US. Use the following criteria for TSX stocks:

  *TSX Stocks only
  *Price/ Earnings (Last 12 Months) >= 1.0
  *Return On Equity >= 15.0
  *Profit Margin >= 1.0
  *Operating Margin >= 1.0
  *Current Stock Price ($) >= 8.0
  *Out-Performed Sector - 4 weeks

• Globe and Mail Investor.com screener

For US stocks my current options and preferences are (in order):

• S&P 5 Stars stocks - provided by TD Waterhouse
• Stockscouter - provided by MSN MoneyCentral

Watch Lists Maintenance - These is the next step after the stocks screening. So far I have the following lists:

• Universe-TSX - contains all my tradeable TSX stocks
• Universe-US - for all my tradeable US stocks

Every night I will visually scan all the stocks in these lists and if I see anything good I will put it under close watch by adding it to my "Hot" watch list. This is the list I will watch during the day.

I will also have other watch lists in addition to the ones already mentioned. Here’s my complete list of "watch lists":

How will I select my trading candidates:

• Scan the list of 52-week highs from Bigcharts.com
• Scan the list of stocks with large % gain in volume, also from BigCharts
• Scan the list of stocks from E*Trade (4/9/18 cross)

How will I filter them:

• My first filter will be the charts. I want to see stocks with “tradeable” charts, meaning, not messy charts.
• I’ll review the company’s numbers (Using GlobeFinance.com):
• Revenue must be increasing year over year
• Profit must be increasing year over year

When will I enter:

• My entry will be based on price action or support. Price action will be buying the break of the high of last day’s bar
• I will also enter on the touch of the 20ema or Keltner Channel (yeah! I know, I love that guy)

Where will my stop be:

• Below a recognized support point, usually a pivot point

How many shares will I trade:

• My size will be dictated by my stop loss size. I will only risk 2% of my total equity in one trade.

How will I take profits or exit:

• I will sell 1/2 of the position when I have 5% profit and move the remainder 1/2 to break even.
• I will close the position when:
• Price makes a lower low followed by a lower high
• Reached 20% profit
• 8/21 cross
• Closed above KC and then closed inside KC

Well, that’s my basic trading plan for stocks. Wish me good luck.