Using a real-time (RT) scanner seems exciting. The thinking is - out of the thousands of stocks, ETFs, indices, etc., the scanner has just flagged "this one". However, after playing with RT scans for awhile, you find that most scanner settings produce too many hits and don't flag a setup that can be entered immediately. Given a few more seconds/minutes, the scanner will find another trading candidate and then another... This is the case with most canned scanner configurations supplied with the software.
So, when using a RT scanner, the big issue becomes 1) How to sort thru all of the scanner hits to find a solid low-risk entry, and/or 2) How to create custom scans that are much more restrictive (fewer and higher quality hits).
I have been working with custom RT scans (in Trade-Ideas (TI) ) for the past several years. The key for me is to scan for unusual/extreme price action combined with unusually high volume (especially during the opening range (OR) period), and then to monitor for low-risk setups. Although the implementation details will vary depending on the scanner you use, here are the scanning filters I use:
1) Price - eliminate low priced markets by requiring Price > $10.
2) Average volume - eliminate thin markets by requiring Average Volume > 1M shares/day.
3) Relative volume - find unusual volume by requiring Relative Volume > 2 (greater than 2x average volume for the current time of day).
4) Find unusual price action by using one or more of the following:
a) Gappers - gap up/down by 1.5% or more.
b) Impulsive move - change up/down with respect to open of 2.7% or more.
c) Gappers and quick moves - % change up/down of 3% or more.
5) To overcome recent support/resistance - require trading outside of previous day's range.
** NOTE: The thresholds for each option are somewhat arbitary and may be tweaked/changed depending on market conditions and/or the number of hits your desire.
Combined with the above filters, I use a heartbeat alert with a settings of 10 mins. This means that if a stock continues to pass the scanning criteria (filters), it will hit the scanner every 10 mins. The screen shot below shows some canner hits (long on left and short on right) from Friday morning. The last column in each scanner windows displays the Relative Volume.
I add a manageable number (15-25) of the scanner hits (during the OR) to my watchlist (WL) and cycle thru the WL looking for patterns and low-risk entries. I also run a scanner on my WL that alerts on NR7 (narrowest range of the last 7) bars. The concept is that in an active market, range contraction alternates with range expansion. If a NR bar forms at a key sup/res level or within a larger pattern, it may represent a good low-risk entry point.
I would like to alert on inside bars (IB), but TI currently does not offer IB alerts.
Both the NASDAQ and the S&P bounced off of their 20-day SMA and formed offsetting type bars. However, the NASDAQ volume was noticeably less than yesterday's strong distribution day. The McClellan summations are still trending up but with less slope.
The offsetting/reversing action in the financials was impressive and on higher volume than yesterday's break.
The financials were hit hard today and led a big down Monday on increasing volume in the NASDAQ and S&P. The S&P closed on its 20-day SMA. The McClellan summation index is flattening in both the NASDAQ and the S&P. A follow thru day tomorrow could turn the McClellan summations down.
I add a manageable number (15-25) of the scanner hits (during the OR) to my watchlist (WL) and cycle thru the WL looking for patterns and low-risk entries. I also run a scanner on my WL that alerts on NR7 (narrowest range of the last 7) bars. The concept is that in an active market, range contraction alternates with range expansion. If a NR bar forms at a key sup/res level or within a larger pattern, it may represent a good low-risk entry point.
Since the index bear flag is in a congestion zone and thus more questionable, the best approach is to find an individual gold stock that is weaker than the index. AEM got my attention. Notice the weakness of the AEM daily chart compared to the index above - bear flag is below trend line. It broke quickly and I had to wait for a pause to enter. Sweet exit at 62% Fib extension.
As the market was firming up, SRS (inverse ETF) had a great setup at the ORL and PDL. I covered at 62% extension of OR and left a lot on the table.
EDIT - Beware that longer term chart patterns in leveraged inverse ETFs (like ultra short 2x and 3x ETFs) are not as reliable and behave differently from their unleveraged counterparts. Such inverse funds track the inverse of the underlying index on any given day, but longer term relationships (on a % a basis) become skewed. The greater the volatility, the more skewed a leveraged ETF becomes with respect to its underlying (unleveraged) index.
Each year around tax day I conclude that I should switch exclusively to trading futures. At tax time, the hassle associated with stock transactions (outside of a retirement account) is many times that of futures. Anyway, I survived.
