Getting to “I like SPY here”: Using Stock Screeners

• Posted by Greg Harmon
• on December 15th, 2010

This pearl of wisdom from one of the most generous participants on StockTwits contains so much wisdom.  Having your own plan, doing your own homework, understanding the tools you use.  I could go on.  Its central premise has been echoed by many, and shows up in my StockTwits stream often. Despite the frequency of this warning, I see that my most frequently read articles are my weekly Top 10 trade Ideas.  I can only hope that readers take those ideas as a starting point and then look at them using their own analysis before making any decisions.  But from the number of StockTwits postings that I see about someone following someone else into a trade, I fear it is unlikely.   What should be made of this?  Blindly following someone else’s plan can be a road to ruin.  Fibline points to two areas that can cause trouble, the scan, and the setup (the entry, stop and the exit). Let me focus on the first area tonight.

The Prepackaged Scan

Most charting packages include the ability to scan for a number of different pre-programmed setups.  These may be Japanese candlestick patterns, Simple Moving Average crosses, Overbought or oversold indicators, or any more.  For some packages there are hundreds of pre-packaged scans.   But what happens when you, me, and 10,000 of your closest friends all use the same scan.  We all look at the same stocks and get roughly the same trade ideas.  How do you get an edge from that?  Change your scan.  I take this as a key part of message above.

Most scanning software allows you to customize any number of parameters.  This can be great for a seasoned professional but daunting for the novice.  Just like when presented with 25 different selections for your 401k the majority choose whatever is the default option.  You have to experiment to see what best fits the markets and sectors that you trade.  You will not decide this overnight.  If it were as easy as opening an account and pressing a button to pick the right stocks everyone would be rich from trading, right?  Take the time and figure out what works or don’t use them.

Proprietary Methods, H2i

You can also avoid most of this by creating your own scans from scratch.  Sure there are rocket scientist that sift through gigabytes of data to find stock and that is one way to avoid the crowd, but it does not have to be that complicated.  I have been asked many times what scanner I use when I am sharing my ideas.  My standard response is that it is a one of a kind proprietary model, H2i.  When pressed further about sharing it I confess that H2i is an acronym for Harmon’s 2 eyes.  After looking through hundreds of charts daily and a thousand or more sometimes every weekend for years, I am getting comfortable at spotting setups.  I do this not only for the  recognition it creates, but to avoid having someone else’s definition of a pattern influence my view.  This also gives me the benefit of finding stocks that may be on the edge of someone else’s scans.  It takes longer and probably narrows my universe of ideas, but it works for me.

Doing your own work will inevitably lead to creating your own set ups, so the to go hand in hand.  Instead of watching that sitcom or going out with your friends every night, sit down at your PC and figure this stuff out.  That is what the winners in this game (the people taking your money) are doing.  If you want to beat them you need to have your own edge.

You can see details of my individual charts and more on my twitter feed and on chartly.  Follow Fibline on StockTwits here.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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