Friday Morning Reader’s Choice: The Process

It is important to understand what intentions are for the output of a process, before you know if that process might have some personal value for you. I am looking for short term swing to position set ups (a couple days to a few weeks), that have potential for moves of over 5% from the technical set up and or an event. I am not a day trader, unless I get that 5% or more in one day, nor am I a long term investor. I understand fundamentals but do not use them to trade, other than an occasional relative value play. With that out of the way here is my process from macro to the micro.

Top Down Technician
As a top down technician, my first step is to identify the trend in the broad market. That means the overriding direction of the S&P 500. This process starts at 4:30 Friday afternoon. For my time frame the daily and weekly charts are important. But I also review the Russell 2000 and Nasdaq 100. I only trade stocks and options on stock,s so this means the ETF’s for me $SPY, $IWM, and $QQQ. Knowing the direction of the trend is like knowing which way the wind blows before picking an end zone in a football game. You want to know which way, long or short, has a tailwind to make it easier. I find it useful to also review those markets that can impact the broad market. So I also analyse 7 other markets: Gold, Crude Oil, Treasuries, US Dollar, Shanghai Composite, Emerging Markets, and the Volatility Index. This inter-market analysis is akin to looking for potential potholes in the road that might stall things or cause a detour. With the trend established and the influencers examined, I then turn to the market sectors. For this I use the Sector Select SPDR ETFs, the XL’s. I am looking mainly for sectors moving with the trend, and then ranking in relative strength. This helps to understand where the best opportunities may exist for the next step, the individual charts. I have a universe of nearly 110 stocks that I track, and each week I look at every one of their charts. Not a scan for trends or different criteria. I look at every one. If it looks interesting I make a note of it. Running through the entire list usually yields between 50 and 150 names as an initial candidate list for trades. That list is then culled until it is manageable for the week. My primary list is 10 names that I use to trade and write trade ideas for clients. That process gets me to Monday morning.

Daily Review
At the end of every day, I quickly review of trend and the larger list, then I make adjustments. I also review the earnings calendar to scan for candidates fitting the trading criteria, that may be reporting the next day . Finally, I review all the open positions to determine adjustments that may need to be made. I may use 3 or 4 ideas in a week or 10 or more. Sometimes I may use none. When the Friday trading day ends I start all over again.

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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