As a follow-up to the many emails I received after my article from last week, I decided to spend some more time discussing the ways that a trader could use the technical indicators to screen for trading opportunities.
In order to do this, you would have to find a website or software that allows you to scan the securities in the markets for the timeframe you are looking to trade. While there are plenty of free websites that allow you to scan end of day data for swing and position trades, you will usually have to pay for one that will let you scan intraday data.
When looking to find bullish trading opportunities, look for stocks that have been moving upward in price but may be experiencing a short term pullback. If they move down into a demand zone, then you have an opportunity to enter into the trend at a higher quality point rather than chasing price.
It really doesn’t matter which indicator or indicators you use. But you do want to be careful that you are not using indicators that measure price movement in a similar manner. For instance, oscillators such as the CCI and Stochastics both measure when prices are overbought or oversold and using both on a scan is redundant.
In the following example, I searched for stocks that were bullish for the week but experiencing a one day decline that caused the indicator to read oversold. This may yield stocks retreating to demand before the next rally.
For a longer timeframe trade, I can simply change the search criteria to locate a weekly uptrend. While I was using the Stochastic indicator for the search, you could substitute any oscillator in its place for your search.
For a bearish scan, I changed my search to look for stocks that were showing downward momentum by having the 20 day EMA below the 50 day EMA. I want to enter short positions when these securities are overbought and at a strong supply zone. I used a close above the upper Bollinger Band® to show them.
Just remember, you can use the indicators to find trading opportunities, but do not use them for entry signals themselves. They will be lagging. There is no substitute for reading price and entering at the strongest supply and demand zones.