It’s no wonder that one of the questions we get asked most often – with so many stocks, sectors and markets to pick from - is how to choose the best stocks to trade. Manually selecting stocks would be a time-consuming, labor-intensive process. We caught up with Gavin Holmes, Tradeguider CEO, to see how using tools based on Wyckoff VSA changes that.
So how to choose
To help you shortlist your target assets Tradeguider has three scanners that look at over 43,000 stocks from exchanges all over the world. Three time frames are covered: 3 weeks, 20 weeks or 2 years. We run the data analysis daily and then publish the lists in the customer portal the same day.
There are 2 different types of scan, one comparing stocks against stocks and the other analyzing a stock’s performance for Wyckoff VSA indicators.
The Sector and Index Scanner identify the overperforming and underperforming stocks in each list. The Sector Scanner identifies these stocks in 9 key market sectors in the US market such as biotech, telecoms or transport.
An example of the Sector Scanner
The Index Scanner compares individual stocks against the parent index. We’ve included indices based in the US, UK, Europe, Middle East and Australasian markets.
An example of the Index Scanner
Different is the Indicator Scanner which looks for those that would trigger a Climactic Action VSA indicator signaling that the stock is about to change direction. You might use the Indicator Scanner on its own or after running an Index or a Sector scan to increase the likelihood of finding more trades.
An example of the Indicator Scanner
‘The chart doesn’t lie,’ says Gavin, ‘So listen to that chart and what the stock scanner is telling you. It will look at the strongest and weakest stock in each category, and then it looks at the short-term, medium-term or long-term view of each of those.’
‘Find the overperformers or the underperformers on your chosen time frame,‘ he continues. ‘If they are red, grey, green, red, grey, green - what I call an Xmas tree - then it is telling me not to take the trade at the moment. You’re not in harmony with any trade,’ Gavin explains.
‘Wyckoff said if you want to find a stock in a bull market, if the market pulls back, a [strong] stock will hold its line whereas the weak stocks will pull back very quickly,’ he says. ‘Or when a market becomes bearish then we’re looking for stocks that are weaker than the index – the markets are falling and these stocks don’t every rally.’
So then decide which has the strongest signal and make your move.
Some important advice
1 - Most people want to trade their local market because they think they will understand it more. Gavin says that isn’t so important. Even trading on an exchange that is not in the same time zone as you is viable, as long as it isn’t diametrically opposed to your night and day. Someone in Northern Europe trading an Australian exchange would have trouble, but trading a US exchange when you are 5 hours ahead can work.
2 - Be open to trade on new time frames than those you currently use. Just because your mentor used a particular time frame, still experiment and find what works for you. ‘It’s very individual,’ comments Gavin.
3 – Stay open-minded about different sectors of the market. Remember this isn’t about allowing stories to affect your judgment, be they stories from the news or drawn from fundamental analysis. It’s about looking at what the chart says.
4 – The same applies to deciding how many stocks to trade. ‘Don’t look for a set number of stocks to trade because one day there might be none, the next there might be 18,’ says Gavin.
Your to-do list
1 – Access the results of the scan you want via the customer portal. The analysis is done at the same time each day for your chosen market or index etc - the details will be on the page.
2 – From those draw up a short list of stocks that are stronger and weaker than the market as a whole.
3 (Optional) – If you haven’t used it already, you might then run the Indicator Scanner on your shortlisted stocks to increase the likelihood that the trade will be high probability.
4 – Check the chart for each asset looking for a viable setup. This takes less time that you might think. ‘If I’ve got 28 stocks [to look at], it might take me 30 minutes,’ comments Gavin.
5 – Place your trades.
Summary: Put gut feeling aside
This automated shortlisting helps you select stocks using computer analysis and not whim or hearsay which places you at risk of market manipulation. And if you use both types of scanner, you have an even more powerful indicator of trade success, which isn’t bad for less than US$3 a day.
Tradeguider is the home of Wyckoff VSA. Our decision support software is all about implementing the time-proven principles of the VSA methodology in solid software engineering. Whiles many traders use Wyckoff VSA to trade stocks, they also use it to trade all the other markets including FOREX, futures, options, commodities, CFDs and cryptos. You can see Tradeguider CEO, Gavin Holmes, live trading these asset classes if you go to our YouTube channel.