The stock market holds a sea of opportunities. However, landing on one is not always an easy task. To the trained eye, navigating the volatile waters of the market demands patience, research and well timed execution. Soon enough, you'll find that the more you prepare, the luckier you get. Once luck becomes a repeatable process, it now transforms to a strategy.
Research. Filter. Analyze.
Any trade strategy revolves around a repeatable process that makes sense of the information that the market is giving. A trader needs to gather as much information as he needs. Separate the useful information from the noise. And study the distilled information to see clear market signals for potential plays.
The scanning process is a three step approach:
Research Relevant Information
Filter Based on Volume
Analyze the Chart
Research Relevant Information
Gather as much information as you need and sort them later on. Make sure you are getting your information from reliable sources. As a rule of thumb, avoid information you get from social media groups and forums as they usually contain "hyped" content with no substantial basis.
In the context of the Philippines Stock Market, here are some reliable sources of information:
Reliable business news sites (ANC News, Philippines Star, Manila Bulletin, Inquirer)
Filter Based on Volume
Volume validates price action. You want to start filtering stocks based on their volume turnover for a specific period of time. Use a reliable stock screener and filter the top 20 stocks that have the highest volume activity for the day (or for the period of time you prefer).
The screenshot above is a sample market screener from Investagrams.
During this step, you'll start to see stocks that exhibit unusual institutional accumulation apart from the usual index heavy weights. Big institutions can hide their valuable information but they can never hide the stocks they are buying and selling each day. The volume activity they leave behind is our clue in tracking the next potential play.
Analyze the Chart
When you have shortlisted stocks with good volume activity, the next step is to refer to the charts and use technical analysis to gauge the ones that show clear buy signals.
Stocks that show a strong buy signal will exhibit the following attributes:
When the general index is below MA200
Steady institutional accumulation or a sudden spike in buying volume.
Stock is either in a steady consolidation or is forming a basing formation.
Price is hovering above a technical support area.
Volatility is contracted for a period of time.
When the general index is above MA200
Steady institutional accumulation or a sudden spike in buying volume.
Stock is either in a steady consolidation near 52 week highs or is forming a healthy pullback from a strong breakout.
Price is continuously retesting a key resistance area with increasing buying volume.
In a Nutshell
Active trading is a labor intensive process. If you want to succeed as a trader, this process that we outlined is just the minimum requirement to be able to achieve some degree of success in the market. There are simply no shortcuts in stock trading. Always remember that consistent profitability demands discipline and due diligence.
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