While there are many ways to trade the stock market, one popular method is trading with the trend. Trading against the trends can be a perilous endeavor and trading is largely about probabilities. Ask yourself, "What is the most likely result?"
When trading with the trend, taking a disciplined approach to stock selection and trade management will further skew the probabilities in your favor. To me, this means buying stocks in an uptrend and establishing appropriate entry and exit strategies prior to making my initial investment.
Lee Bohl and I discuss this process in our weekly Trader Talk in Today's Market webcast. This article will focus on a quick method for locating stocks in an uptrend using a series of specific criteria to scour the entire market using the StreetSmart Edge® Screener Plus tool.
One way to think about buying bullishly trending stocks in a bullishly trending group is how you might pick an apple out of a basket. For example, you want to buy apples and have ten baskets from ten different orchards from which to choose. Do you want to buy the best apple from a basket of poor to average looking apples or do you want the best apple from a basket full of gorgeous apples? As such, I like to find attractive chart patterns for stocks in groups which are trending upward. This puts the probability of success in my favor.
With this in mind, I start with a review of the broad market trend by charting the Dow Industrial Average ($DJI), the Nasdaq ($COMPX) and the S&P 500 ($SPX). Is the broad trend up, down or sideways? Next, review the 11 sectors of the market. Which are the best performers for a five-day period, 20-day period or six months? Which timeframe is the one you would like to trade?
Once identified, screen only within the group of stocks that is trending bullishly. Often, this eliminates a majority of the market from consideration, limiting the amount of analysis necessary.
Here's a screenshot of the StreetSmart Edge screener plus tool showing some of the standard criteria by which I like to screen the market.