I hear it all the time. “I know how to read charts, but where do I find something for day trading, there is so much going on I am always missing stuff.” This happens all the time, to many many people. Investing, not so often, because you are on a much higher time frame to hold, you have plenty of time to do your research AND the media and stock analysts bombard you with information. When it comes to trading, whether it be day trading or swing trading (holding for days to weeks), its harder to find ideas that are timely if you don’t know how to do it.

I will break it down into a few steps that will seem simple after you try them. I am assuming everyone who is reading this is familiar with charting basics, and has access to real time data, and is ready to learn how to find ideas for day trading

1. Make sure you have access to a real charting program.

By real, I mean not a static chart on a web page – you need a dynamic, real time updating chart. Usually these will be stand alone programs. Do not use delayed quotes – it does not cost that much for real time quotes. You cannot trade effectively at all with delayed quotes, and if you are serious about trading in any capacity, you will need to pay for quotes. A lot of brokerages will offer them for free with minimum trading amounts each month. Just make sure the charting program they offer is full featured.

2. Go to Standard and Poor’s (or any other site, does not matter) and get a list of all the sector SPDR’s.

In addition, there are many other ETF’s that represent sectors and industries. This is essential. Open a daily chart, and put in any 1 of the symbols, it does not matter. On the daily chart, put a 5 period simple moving average and a 13 period simple moving average. In addition, put a 20 period linear regression line (close based) on the chart. Almost every charting package will have access to this. You will only have to do this once a week.

3. Create a list on paper or spreadsheet labeled: Daily Up, Daily Down.

We want to go thru each ETF symbol over the weekend and find the actual trend of the sector. Type each symbol into the daily chart. If the slope of the linear regression is up AND the stock is above the 13 period average, the trend is up. If the slope of the linear regression is down and the stock is below the 13 period average, then the trend is down. Mark the ETF in the up or down column. This gives us the overall sector trend for the week. Once you get more adept at it, you can start to differentiate between strong up, up and strong down and just down. If it’s hard to tell the difference (up or down) then just pass on that name, don’t put it in either column. As you get more experienced, this part will get very easy to do.

4. You should now go back on the internet and print out the top 3 names from each sector on your up down list by market cap.

This information is easy to find using Google. You want the names that comprise the ETF – this is what you will trade. Of course, you can trade the ETF too, if you wish. You only have to do this every few months (the breakdown list within the sector ETFs). Once you have them, put them on a spreadsheet to keep. Take the names for the ups first. This is your watch list for longs. Open another chart, a 60 minute chart with the same indicators as above. Make a note on each of the ups if the 60 minute is up or down. This can be done each day before the market opens, or after the close. It can also be done on the fly during the market, but you just need a frame of reference.

Note the highest high in the last 10 bars (the highest point) where the stock makes a / top (goes up then backs away. Note the lowest low in the last 10 bars(lowest point) where the stock makes a V bottom (goes down then climbs away). This will be your near term support and resistance points for breakouts. You can program your quote system to alert you on each name if they get near those points (usually within ?% you are going to want to watch closely - there is a possible trade there. Either the stock will breakout (keep going) or it will meet resistance near there and sell if it’s a / area, or it will break down or reverse higher if it’s a V point.

5. Once you have the master list of names, you can also look on a 15 minute chart and look for areas where it stalled a lot time wise, made a / top area, or a V bottom.

These are key areas to watch for trades. As a trader, you want action, not back and forth noise, that is hard to trade and make anything decent, especially in the beginning. You can watch the 15 minute charts on stuff in real time. You will need to cycle thru the names or set up your chart program so its easy to cycle through every few minutes. Ideally you want your watch list from the daily and 60 min filters to have about 20-30 names. That is enough you should find several good trades a day, or at least they present an opportunity.

6. Do not try to do too much. Don’t worry if other stuff is running up, or selling fast. You cannot possibly watch it all - stick to your watch list.

You will end up worse off trying to watch too much and miss stuff that could be a good trade. Concentration on a few names is always easier, and allows you to learn how stuff trades (the personality). One key note you will want to pay attention to is how fast and far something moves within about a 3 minute period of time, on average. Some names might whip up and down 1-2% in that amount of time, while others can only move .5%. Again, this is when the market is active, not in the middle of the day when nothing is going on. It is just a frame of reference. Over time you will become a master at knowing how stuff trades – this is key to controlling risk.

7. Another way to find trading ideas is to have your 60 minute up list that are also on the daily up list (both are uptrend). When the market sells off sharply, look to go long these names when the 5 period moving average crosses above the 13 period average on a 15 minute chart.

Crossing above means the 5 period average has been below the 13 period, but right now it’s just moved higher than the 13 period average. This is IF these types actually sell. Sometimes the trend is strong and they will buck the market. For shorting, just reverse it, you want daily down and 60 minute down, then look to short on a big push in the market, when the 5 crosses below the 13. The key here is strong ups (60 and 15 MA up) should not be super weak vs the market. If the market is down 1%, the stock should not be down 5%+. This can be a key that some profit taking is happening. If this is the case, often times it will not rally back up, or really struggle to. Obviously this can vary a lot, but in general you are looking for the strong stuff to be backing off, but definitely still outperforming the market. The reverse is true for shorts.

8. A last way to find ideas is to use your charting programs scanner (or any stock market scanner).

Find the names in the first 15 minutes of the day that are up the most on the biggest increase in relative volume (meaning yesterday, 15-20 minutes after the open, what was the volume vs today etc). These are possible big trending names for the day. At the very least, mark them down to try to buy on weakness. The same is true for shorts, make a list of the most down on the biggest increases in relative volume. Keep this list, and mark down the price right now. You are going to run this list again in another 20 minutes. Find the names where the price is higher than it was earlier for ups, and the list of names that are lower than earlier for sells. These are your key watch list to add on any back off. Stuff that is far lower on ups or far higher on downs after another 20 minutes you can probably just ignore. What you are looking for is massive panic on one side or another that wants to get in now and are very aggressive about it.

There are many, many more ways than this to actually find ideas, but this is a decent start. Of course this is an oversimplification of what you actually need to do, but should be able to give everyone a decent heads up on how and what to look for.

Learning to do your own homework is one of the keys to becoming successful. Once you get good at it, you can cut back on the prep time as you will be able to whip through it in real time during the market, and tailor what you are looking for based on the market action for that day. You also should start to have more ideas to trade than you can actually use. This is a good thing. If you find you are still overwhelmed, cut down on your watch list to a more manageable number. Remember, this is a way to find day trading, NOT investments. Do not turn a short term trade into a long term buy and hold – this almost always leads to disaster.

Posted in Finance ~