Let’s talk about how to scan for stocks. A lot of people ask me, “How do you find the ticker of what you’re supposed to trade on a specific day?” Here are a few simple tricks to help you narrow down which stocks to trade so you don’t end up over trading.
Top Percent Gainer
The first thing I do is look at the top percent gainer on your platform. There are a couple of platforms I recommend: Etrade Pro, Interactive Broker, TradeZero, DAS Trader, and EquityFeed. There are several you can choose from. Once you find your trading platform, you want to select either NASDAQ or New York Exchange to find the top percent gainers, looking for anywhere around 20% or above. Sometimes you can see that there is a stock up around 10,000% or 20,000%, but no volume, which means the stock did a reverse split. Reverse split takes a little bit longer to explain, so I’ll talk about that another time.
Scan The Stock Range
Second, you want to scan for any stock that is under 200% or above 20%. In that range you want to find a stock that fits your pattern and meets your criteria for placing a trade. There are three things you want to look at when you are scanning the stock range: premarket volume, flow, and market cap.
First: premarket volume, which is super important. You want it anywhere above 100,000. If the volume is too low in the free market, the stock gets really thin and you don’t really have an idea how much volume is going to trade right after open. Most of the time, if the volume is low, the stock’s going to trade under a really thin volume, anywhere under 4 million. It’s very difficult to execute trades when the volume is that thin.
Second: flow. Flow is also very important. We all know the principle of supply and demand. The lower the supply, the higher the demand. The higher the supply the lower the demand. This will affect the stock price. If there’s too much demand, and a limited amount of supply, the stock will go up. If there’s too much supply, the demand will go down, which will decrease the stock price. That’s why low flow sometimes increases significantly compared to higher flow. I typically don’t trade in the flow range between zero and two million. If the flows are 2 million, that is very easy to manipulate, which is important. Additionally, when there is low flow, the price and volatility can jump back and forth with a bigger range compared to other stocks that have a little bit bigger flow. This can make it more difficult to execute trades and find your ideal entry. For example, let’s say you want to execute a 7.50. On those lower flows we can probably get secured at 7.30, which is a 20 cent difference compared to what you want to execute in a higher flow, especially when you’re using market orders.
Third: market cap. We all know if the market cap is too big, maybe it’s a 1 billion dollar market cap for example, it’s not going to go over 1000% because they need so much money to move the 1 billion dollar market cap. Now if the stock is under 100 million or 200 million then it has a chance to go up 100% because there is a possibility that stock will bring 100-200 million to the market cap on the current day, but you don’t really see that often. Most of the time the stock jumps from 20% to 200% anywhere between 0 to 100 million. That’s what you would consider the mid-cap or small-cap zone. You can trade a comfortable range around 0-200 million. Anywhere above that I don’t feel comfortable trading, especially on parabolic.
Stay Away From Crowded Trades
Third, you need to be aware of crowded trade. If the trades get super low volume, it’s not good to trade. But on the other hand, if the stock trade gets too much volume, it will get crowded. Think about it this way. If there’s a new industry and tons of people are trying to go in and make money on this new industry, the competition will increase and it will be difficult for anyone to make a lot of money in the industry. It’s the same with the stock market. If the stock is super crowded, it’s very difficult to make money. When the stock gets super crowded I typically tend to stay away.