How to Find Stocks to Trade: Part 3 (Scanners) So far, we’ve gone over how to find stocks with news and how to find stocks with EquityFeed. Both of those strategies are intended to be used more for penny stocks. I use this next strategy mostly for NASDAQ’s, however, it can be used for a variety of different stocks. If you don’t have a stock scanning tool by now, you need one. Stock scanning tools add a whole new dimension to your trading. They let you find the hottest stocks and filter out the junk. I’m sure there are a lot of great scanners out there. I use 2 main ones, and I will discuss them both. FinViz: The Free Option FinViz is a completely free stock scanner, so you have no reason not to use it. They have a wide variety of ways you can filter stocks, from fundamental statistics to technical indicators. Don’t let the “free” part deter you – this is a top-notch service. I will mostly use this tool after hours when I don’t feel like using my multi-monitor setup for other scanners. Mess around with different scans and see what works for you. I don’t have many saved scans for this tool. I like to try different things. The goal is to create filters that align with your strategy. Experiment with different inputs until you get the right outputs. My favorite part about this tool is that it displays a lot of charts all at once. This makes it easy to go through hundreds of charts and quickly spot the ones you like. Additionally, their technical charts include some trend lines and patterns that may help you spot nice charts faster. E*TRADE Pro: The Paid Option E*TRADE Pro Strategy Scanner is my main scanning tool. I use it during market hours and after hours as well. This tool is crucial to the success of my day trading strategies. I believe that E*TRADE Pro charges $99, however, if you make at least 30 trades/quarter, the software is free. The strategy scanner module allows you to set criteria for stocks you want to find. You can run real-time scans or scans from previous days. I have four main scanners setup during trading hours. Main Scanner This scanner is the most active. It is intended to find hot stocks for scalp trades or breakout plays. A lot of the alerts are useless, but I have a good feel for which ones are the best, and I am constantly refining the scanner’s criteria. I filter stocks by price, # of trades, dollar volume, and total share volume. I receive alerts for stocks setting new highs, breaking above or below 20/50/200 day moving averages, forming symmetrical triangles, breaking out of consolidation ranges, forming bullish candlestick patterns, and more. During the day, I keep an eye on a stock’s relative volume and the number of alerts it has had in order to better assess the quality of the alert quickly. Social Scanner This scanner tracks increased StockTwits activity for stocks. Remember, stocks are considered “in play” when they have a large audience and high volume. This increased social activity indicates that there is a large audience. You’ll also notice that there is high relative volume for most of these alerts. This scanner is nice because it only delivers a few alerts each day, so I’ll just glance at it a few times each day. I only filter these stocks by price (under $10) The only alert is increased StockTwits activity. Penny Stock Scanner This is another scanner that only delivers a few alerts each day. I use it to find good penny stocks for swing trades. I filter stocks by price, dollar volume, and share volume. I receive alerts for stocks setting new highs or lows, or breaking above the 50 or 200 day moving averages. Watch List Scanner I have hundreds of symbols on different watch lists, but I like to keep my main watch list small in order to stay focused. That being said, I don’t want to miss a move on a stock I am familiar with. So, I set up a scanner that scans all of my watchlists and alerts important activity. I filter stocks by their dollar volume only. I receive alerts for high relative volume, new highs/lows, and 20/50/200 day moving average crosses. In Conclusion Scanners are a crucial tool for active traders. They allow you to be aware of what is going on in the market at all times. Additionally, they allow you to find stocks that are moving before other traders do. The point of showing my scans was just to give an idea of what you can do with these tools. When you create scans, they should align with your trading strategy. Otherwise, you will get a bunch of alerts that you can’t act on and the scanner is useless. Creating a good scanner takes time. I refine my scans on a regular basis. The more you use the scanner, the better you understand it. This allows you to filter out bad alerts and better refine your scanner inputs. If you have any questions, feel free to contact me through the contact page on my site. Check back tomorrow for the final post in this series, How to Find Stocks Using Social Tools.

How to Find Stocks to Trade: Part 2 (EquityFeed) In my last post, I discussed how to find stocks using press releases. If you are trading every day, you can’t rely solely on good press releases. You need other options. The main tool that I use for finding good OTC penny/subpenny stocks is EquityFeed. The tool has a monthly cost, but there is a free trial available for you to test out the software. Let me make it clear that I am not trying to force this software on anyone. I am bringing it up because it is a valuable tool in my arsenal of trading software. You can probably apply some of these strategies without EquityFeed if you would prefer not to buy the software, however, I do recommend checking it out. Let’s get right to it. Here’s are the many ways I find stocks with EquityFeed: News: Equity Feed has a streaming news module. This module constantly refreshes and alerts you whenever there is press releases or SEC filings for OTC companies during the trading day. This allows you to react to these catalysts much faster than traders who are using slower sources for news. It also allows you to view important data such as the stock’s volume, price changes, etc. You can filter the news by keywords, types of stocks, and other criteria. Market View Another one of my favorite features of EquityFeed is the Market View feature. This shows you all of the OTC stocks and allows you to sort them by different criteria. I split this feed into stock that are under $0.10 and stocks that are between $0.10-$0.50. Then, I sort the stocks by their dollar volume for the day or the # of trades. This allows you to see what the hottest stocks are during the day and make trading decisions accordingly. It also helps you find stocks that may be hot the next day as they continue their trends. Of course, you can filter these lists down even further, but I like to keep it simple. Trading Alerts This window gives you live trading alerts throughout the day and organizes them by type (each color is a different type of alert). You can create alerts for new highs, new lows, unusual volume, and block trades. This assures that you are always aware of what is going on in the market. When people bring up stocks breaking out in chat rooms or on Twitter, I have already been alerted in EquityFeed much earlier. Setting up alerts is very easy to do, unlike some other scanning tools. Filter Builder EquityFeed has a feature called Filter Builder that allows you to scan the markets for stocks with very specific criteria. For example, you could create a filter for stocks with increased volume approaching their 200 day moving average. You can use this tool for live streaming during the day, however, I rarely do because I already have the trading alerts window. I will use this tool at night to find stocks that may be good swing trades or day trades for the next day. There are so many different filter variations you can make it so you need to constantly test new strategies. In Conclusion EquityFeed is a great tool for people who trade a lot of OTC stocks. I recommend messing around with it a bit and seeing if it aligns with your needs. They have a 30-day free trial, and you can also get 10% off of your subscription when you use this link. If you have any questions, you can feel free to contact me through the contact page on my site. Check back tomorrow for Part 3 of this series where I will discuss Stock Scanners.

How to Find Stocks to Trade: Part 1 (News) Before you can enter a trade on any given day, you need to have a list of stocks ready to trade. If you are an active trader, your watch list should be dynamic and reactive to the markets. Having the right stocks in your watch list can make or break your success on any given trading day. Over the next few days, I will be posting a few articles detailing ways to find stocks to trade. Let’s start with the basics. When building a watch list, you want to find stocks that are “in play” or “hot stocks.” If a stock is not in play, you really have no reason to be trading it. So, what exactly does it mean when a stock is “in play”? It means that there is some excitement/hype surrounding the stock. People are watching the stock closely and waiting to make a move. This means the stock has a large audience who may support the move when the time comes. The first way to find a stock that is “in play” is through news sources. When a company releases news, it means something has changed within the business. Consequently, something should change with the stock price. The news is a catalyst. If it is good news, the stock should go up. If it is bad news, the stock should go down. News Sources Most of the news I read is for penny stocks, because these are the stocks that can move 20%, 40%, 50%+ on a single press release. I don’t read much news for bigger companies during trading hours because there are far too many of them, and if it is significant news, I will find the stock when it shows up on my scanners. Below are some places you can find news for penny stocks.: OTC News (through the OTC Markets newswire) – News directly released through the OTC Markets website OTC News (through third party wires) – OTC news from third parties. InvestorsHub News – News released through iHub. The better option for iHub news is to setup news alerts for companies you follow. You will get an email whenever these companies release news. The emails will often send before the news even shows up on the iHub site. Marijuana Stocks News – This sector isn’t as hot anymore, but I used to check this news a lot. It’s worth a look every now and then. EquityFeed – This is by far my favorite news source. Unlike other news sources, EquityFeed picks up on almost every news piece in real-time. There is a monthly cost, but a free trial is available if you want to test it out. I will be doing an entire post on how to find stocks through EquityFeed. Filtering Through News There are hundreds of press releases distributed every single day. This doesn’t mean that all of them are important. It’s very easy to send out a press release. I could send one out tomorrow if I wanted to. Learning to filter through press releases is a crucial skill for traders who incorporate news into their strategy. Considering that most of the news I read is related to penny/sub-penny stocks, I have to filter out a lot of junk. You should be asking yourself two questions every time you see a press release: 1. How will this news effect the company? 2. How do I believe people will react to this news? Both questions are equally important. For example, a company may release news that they sold 1000 cases of their product to a recognized brand like Circle K. You do your research and learn that this company’s profit margin is terrible and this sale will likely be a one-time transaction. You just answered the first question. Now, proceeding to the second one. How do you think people will react when they find out a small penny stock company landed a deal with a brand like Circle K? Less diligent investors may get excited and purchase shares. You can usually determine the reaction to news based on price action and volume. Just make sure to ask and answer both questions. Let’s break news down even further now. We have a few categories of news that I think are important enough to discuss. Good vs. Bad – This one is simple. Is the news good or bad? A company may report a toxic financing deal or bad earnings. This is bad news and you can expect the stock to go down. Contrarily, a company may report an impressive new contract or good earnings. This is good news, and you can expect the stock to go up. It’s as simple as that. “Fluff” vs. Important News – Not all news is really “news.” Some companies just release news to keep people focused on their stock, or simply because they don’t know any better. By asking the question “How will this news effect the company?” you can filter fluff news from important news. Expected vs. Unexpected News – You’ve probably heard the expression “buy the rumor, sell the news.” A lot of people buy a stock in anticipation of expected news. This means that the news has already been factored into a stock price. In these cases, a stock may go down on good news as traders collect their profits. In Conclusion Understanding how news will affect a stock price is not a science. You are not dealing with just the news; you are dealing with the mass reaction to the news. It still baffles me when I see certain press releases that move a stock’s price. You won’t be able to catch every move – focus on the best ones. Additionally, I will rarely trade solely based off of news and don’t recommend it. News is just a catalyst that brings attention to a stock. Once you find news that catches your eye, you should still apply your regular trading strategy to the trade (technical analysis, fundamental analysis, etc.) Be on the look out for Part 2 of this series tomorrow: How to Find Stocks with Equity Feed.

Level 2 Tip: Know Your Market Makers In another post, I talk about understanding Level 2 screens from a supply and demand perspective. This article builds on the supply and demand concept by focusing on who is supplying and demanding shares of a stock. This doesn’t matter as much to me for bigger board stocks, but I will always analyze the market makers for an OTC penny stock. What are Market Makers and Why Are They Important? Market makers control the stock market, which means that the fate of your stock is in their hands. When you place an order for a stock, your order is sent to a market maker who fills the order for you. Think of a market maker as a middle man of sorts. If you want to buy 100,000 shares of a stock at $0.05/share, you send the order to your market maker and they present that order to sellers. Just like if you wanted to buy a house for $500,000, you would tell your real estate agent, and they would pass that offer along to the seller. Modern technology makes placing orders a speedy process that most give little thought to. It’s easy to look at a Level 2 screen and think of all market makers as equals, but each market maker is unique and understanding their behavioral trends can help you place better orders. As we know from a previous article, supply and demand levels are what determine a stock’s value. Knowing your market makers allows you to understand who controls the supply and demand for a stock, giving you a more thorough understanding of your market environment. Which market makers are important? Different market makers will be important for different stocks. It’s important to analyze the level 2 screen for each stock individually. Keep in mind, that different market makers may behave differently on each stock. The best way to figure out which market makers are important is by analyzing the level 2 screen for a couple of days to get a feel for how the stock trades. Look for things such as which market maker controls most of the volume, how many shares the market maker shows vs. how many they actually sell, the size of the spread, and how fast the market maker allows the stock to move in either direction. I also like to check a stock’s historical trading volume by market maker. Market makers are required to submit their reports of shares sold each month. The data comes out at the end of the month, so it’s not real time, but still a handy tool. You can check the monthly share volume report for a stock by clicking here. Remember, the main focus is to learn how a stock trades and all analyses should be relative to this goal. I don’t want to talk too much about specific market makers, as that could take all day. I’ll just cover some basics: Notable Market Makers for Penny Stocks When most traders place an order to buy/sell a stock, it usually goes through a wholesaler or ECN (electronic communication network). Some popular market makers for these types of transactions include NITE, ATDF, ETRF, and ARCA. A look at a monthly share volume report will show you that these market makers handle a lot of volume. Certain brokers allow you to choose which market maker you route your order through, however, most discount brokerages such as E*TRADE will route it automatically. When I see these market makers on a level 2 screen, I will usually analyze the orders to gain some insight into the psychology of the traders in a stock. I assume that these orders have been placed by traders (not MMs) until being given a reason to assume otherwise. So, for example, if I see ETRF put up a bid to buy 100,000 shares of a stock, I will assume that was placed by a trader and not just an MM trying to balance the market. That being said, the latter is also a possibility and these MM’s can still play games and manipulate a stock price. Regardless, analyzing these orders can give you some insight as to how traders/MM’s expect the stock to move on a given day. Dilutors If you have been trading penny stocks for some time, you’ve probably heard the term “dilution” thrown around quite a bit. Dilution hinders a stock from running and can push the price down as well. Dilution is most noticeable when a market maker shows a certain amount of shares at a specific price, but sells much more than the amount shown (soaking up size). For example, VFIN may be showing 10,000 shares for sale but actually selling hundreds of thousands. When I see a market maker who is infamous for dilution on a level 2 screen, it is a red flag. Frequent dilutors include but are not limited to VFIN, VNDM, PERT, and VERT. I view dilution on a level 2 screen the same way I view a resistance level on a chart; price levels that will be hard to break. Example Here’s an example from last week’s trading of MYEC: Anything catch your eye when you look at this? The first thing I notice is market maker “VNDM” on the ask at .016. So, why is this significant? I’ve been watching this stock for awhile, and market makers such as VNDM and VFIN will often sell massive amounts of shares at a certain price level (dilution), hindering the stock from going up. If you just looked at this Level 2 screen from a supply and demand perspective, things would look great. It appears that there is much more demand then there is supply, meaning the stock could run soon. Analyzing the market makers allows you to understand that there is probably a lot of supply around .016, making it difficult for the stock to run. The stock chart confirms this. Below is a 5-minute intraday chart of MYEC’s trading action. Notice how the stock cannot break above .016 towards the end of the day. Every time it gets close, it is pushed back down as traders realize that it will be hard to break that price level. Now, at the end of the day, VNDM moved his ask price up to .019. To me, this means the stock has room to run up to that level, however, by this point it was too late. Many traders already got their shares for cheaper and have less motivation to push the price up. I bring this up because it’s another important point about the effects market makers have. Traders want to enter a stock when they think it has the potential to move up. When a market maker holds the price down through dilution, they make the stock less appealing. Additionally, a lot of buyers end up getting their orders filled at cheaper prices, meaning they have less motivation to buy shares at higher prices on the ask. Knowing that a stock has been diluted is a great way to understand the psychology of the traders involved. Other Important Points: Soaking up size – Soaking up size is when a market maker buys or sells more shares of the stock than they show on the level 2 screen. If a market maker is soaking up size on the ask, there’s a good chance it’s dilution and this is a bearish sign. If a market maker is soaking up size on the bid, that means they could be accumulating shares or creating a level of support, which can be a bullish sign.

– Soaking up size is when a market maker buys or sells more shares of the stock than they show on the level 2 screen. If a market maker is soaking up size on the ask, there’s a good chance it’s dilution and this is a bearish sign. If a market maker is soaking up size on the bid, that means they could be accumulating shares or creating a level of support, which can be a bullish sign. Shorting – Many people make the assumption that market makers want to see a stock rise in price. Keep in mind that market makers can short sell a stock and profit on the way down.

– Many people make the assumption that market makers want to see a stock rise in price. Keep in mind that market makers can short sell a stock and profit on the way down. Fake Big Orders – One of the best ways to mess with the psychology of the market is to show big orders on a level 2 screen. Big orders on the bid make it seem like there is a large demand for the stock, while big orders on the ask make it seem like there is a lot of supply. These levels can act as mental support and resistance levels for traders using level 2 screens. Market makers know this and can place big orders to move the stock in a certain direction. For example, if I buy 100,000 shares of a stock at .03, and it runs to .04 where there is a market maker showing 5 million shares for sale, I (along with other traders) may sell the stock. The large order may not even get filled at all, however, its presence alone has an effect.

– One of the best ways to mess with the psychology of the market is to show big orders on a level 2 screen. Big orders on the bid make it seem like there is a large demand for the stock, while big orders on the ask make it seem like there is a lot of supply. These levels can act as mental support and resistance levels for traders using level 2 screens. Market makers know this and can place big orders to move the stock in a certain direction. For example, if I buy 100,000 shares of a stock at .03, and it runs to .04 where there is a market maker showing 5 million shares for sale, I (along with other traders) may sell the stock. The large order may not even get filled at all, however, its presence alone has an effect. Market Makers are Traders – All this talk of shorting, soaking up size, and fake big orders can seem like a crazy conspiracy theory. I’ll admit that there are some crazy market maker conspiracy theories out there, but it’s important to remember that market makers are traders. Just like other traders, market makers are trying to make money. Yes, it is their job to keep a balanced market, however, they are also responsible for remaining profitable. This is important to understand because it can shed light on a market maker’s intentions. For example, if a market maker shorts a stock at .02/share and the stock runs to .04/share, you could understand why the market maker may have motivation to push the price down. Don’t get paranoid and automatically assume market makers are manipulating a stock; just be conscious of what is going on and look for red flags. In Conclusion In no way is this article intended to be a comprehensive guide on understanding market makers. I’ve barely brushed on the topic. My main focus is to stress the importance of knowing about market makers and how they operate. The best kind of analysis you can do is real-time. Observe different market makers and their behavior and do the research necessary to allow you to make smart trading decisions. Understanding the behavior of market makers can add a whole new dimension to your trading strategy.