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| by Mel Raiman |
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Now that the initial excitement of the
Opening Range upgrade has passed it’s time to regroup and think
through what we, as traders, are doing in order to use this powerful
tool more effectively. I’ve read dozens of posts on the HotScans
Message Board about the best way to play the opening range. I don’t
want to influence your decisions, especially if your tactics are
working for you. I just want to pass along a few thoughts about
merging the forces already in HotScans to give you even more
powerful trades; perhaps more follow through when playing an opening
range breakout or breakdown. As you have probably noticed, stocks
breaking their opening range often fizzle. In fact, I have a long
list of stocks that have a propensity for fizzling, but that’s a
story for another article.
With the Opening Range tool we
have a method for quickly identifying the bias of a stock. If it’s
above the opening range the bias is long, below the opening range,
the bias is short. If a stock is trading in the channel formed by
the high and low of the opening range, the bias is neutral. There is
no guarantee, of course, that just because a stock peaks above its
opening range, that it will follow through. Mark Fisher, in The
Logical Trader, cautions traders to give a stock time to
establish a bias. Mr. Fisher believes that a stock must trade above
the opening range for at least half the length of the opening range.
If the opening range is calculated based upon 30 minutes, then he
believes that you should wait about 15 minutes as a means of
confirming the breakout. Many of us are depending upon signals from
various trading platforms to confirm long and short signals. In my
case, I often enter after a stock retraces and then climbs through
the high of the opening range, or after a retracement while
remaining above the opening range. Waiting for a logical entrance
does not always work, however. HotScans brought up SYMC the other
day. I found it in the first five minutes, but it did not retrace,
it just ran for about $2.00 until it finished it’s run. By waiting
for a retracement and new entry point, however, I almost never
suffer a strong reversal.
I was speaking with Keith
Schneider of DataView a few weeks ago about the fizzle problem when
he reminded me about the MarketGauge Select feature in HotScans. I
suspect I am one of many HotScans users who either forgot about MG
Select, or never use it for fear that they will miss a one-day
wonder. After our conversation, I decided to trade only MG Select
stocks, after all, the whole purpose of MG Select is to find ideal
candidates for day trading. You can
read more about MG Select stocks and how they are chosen by clicking
on this link: MG
Select The key to maximizing your trades is
to combine MG Select stocks with the opening-range feature of
HotScans. Therefore, when I log in, I go directly to the Opening
Range upgrade. Then, I set up my advanced filters as before; now,
however, I click the MG Select Only box found on
the bottom set of filters. The following summarizes the reasons for
using MG Select stocks:
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The
power in using MG Select
is that it instantly narrows your trading candidates down to
stocks that have the best probability of moving because they
have a history of being volatile! |
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Ø
When a stock shows up in a
scan you can have more confidence that it is a good
trader. This should save valuable time usually spent
checking out an unfamiliar stock.
Ø
You may relax some of your
price and volume criteria because a 100% increase in volume
in a liquid volatile stock can be as powerful as 500% volume
increase in a less volatile stock.
Ø
You will decrease your
chances of ending up in a stock that doesn't move after
you establish a position in it.
Ø
As you use the MG Select
option you will get to know the personality of these
stocks. Getting to know the personality of a stock can
greatly improve your trading in that stock. |
There are certain criteria that I add to the
equation. For example, I only trade NASDAQ stocks because I demand
superior execution. When I look back at my trades for a period of
months, most of the losses were the result of not being able to get
in or out of a stock with instant execution. Example: I put on a
trade with BSX; the signals were deteriorating and I determined that
I should get out quickly, possibly with a small loss ($10 to $30).
BSX is a high volume stock, but by the time I was out, I had a $90+
loss in addition to commissions and fees. That was a few weeks ago,
and that was my last trade on a listed stock. Interestingly, there
are only a small number of stocks (about 140) that have average
daily volume of more than one-million shares, an average daily range
of more than a point, and are in my price range. Eliminate the
listed stocks and the list shrinks to several dozen. Now I tend to
trade the same stocks as they periodically appear in HotScans; and I
trade them with confidence.
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_________________________
Mel Raiman is a
frequent contributor to Precision Day Trading. He is the author of
A Wizetrader’s Guide to Effective Day Trading
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The release of the latest
version of HotScans provides you with a unique ability to
track stocks' price and volume action around their Opening
Range (OR). The new opening range icon in the HotScans table
visually alerts you to any stock that is currently breaking
out of its OR or just trading above or below it its OR. It
also illustrates the day's history of where the stock has
traded relative to its OR. Having experienced the power of
finding stocks that break out of the OR, many users have
asked, “How can I find stocks before they break out?” There
are a few ways to do this with HotScans. Some of them have
been discussed in conversations on the message board. In this
article I’ll explain another simple way to do it using the OR
pattern and the Percent Retracement From High (“% Off High”)
column. The objective is to find stocks trading near both
the top of their OR and their high of the day.
Before I get into the details, I
must say that I can show you how to find stocks that are about
to break out, but I can’t guarantee that they will. By this I
mean that every stock that breaks out will meet the criteria
I’ll define, but there are also plenty of stocks that will
meet these criteria and then sell off from the high of their
OR rather than break out. It is good to find a stock before it
moves, but make sure you don’t jump in too early. A break out
is not a break out until the stock breaks its resistance! If
you buy it before it breaks out then you are buying right into
resistance--a point where it will often reverse! The reason
to identify the stock before it breaks out is so that you will
be better prepared to act when it does move in the direction
you are anticipating.
Start with Opening
Range Big Volume Now
The key to
this method lies in the proper use of the OR pattern filtering
to find stocks that are still in the OR, combined with the use
of the % Off High filter to identify stocks near the high of
their OR. Before I start setting advanced filters, I must
start with some basic settings. I like to start with a Big
Volume Now 5 Minute preset scan. Then I set my Opening Range
Period to be 30 minutes because I use this time frame to
determine my bias for the day. With an Opening Range Big
Volume Now scan open, I go to the Advanced Filters section and
change the default setting on the Scan Period Volume to “Not
Filtered”. I use the Big Volume Now with volume "Not Filtered"
because this will show me every NOT filter based on price
change, and it will sort the table by relative volume. I could
use Rally Now, but then I would only get the stocks that have
moved up the most in the last 5 minutes. By using Big Volume
Now I will get stocks that are moving up, moving down, and
consolidating. I like this because I usually prefer to see
some consolidation around the high of the OR before the break
out.
Filter for the
Indecisive OR Patterns
Now let’s
look at how to filter for stocks that are about to break out.
If the stock is about to break out, then it must still be in
its OR. On the Advanced Filters page in the Opening Range
section of HotScans you can elect to have HotScans scan for
stocks that are currently trading within their OR. I don’t
mind if the stock has taken out its OR by a little bit and is
now back in the OR because I’m going to evaluate the break out
opportunity using a chart before I enter a trade. So I’m
looking for any stock that is currently in the OR. This means
selecting the four patterns labeled as “Indecisive Action” in
the Advanced Filters section. Uncheck all the other OR
Patterns in this section. See Figure 1 for a picture of which
OR icons you want to have selected.
Figure 1: Opening Range Filter
Criteria
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Limit Your Search to
Stocks at their Highs
This next
step is critical. Now that I have requested to only look at
stocks in the OR, I need to further refine the list to stocks
that are trading near their high for the day and near the high
of their OR. This is done with the “Percent From High” filter
on the left side of the Advanced Filters section. This control
filters the data in the column in the HotScans table next to
the stock’s change for the day. This column shows you where
the stock is trading within today’s range. It does this by
displaying how much the stock has retraced from its high
relative to today’s range. For example, if a stock’s high for
the day is $10.50 and its low for the day is $10.00 then it
has a range of $0.50. If it is currently trading at $10.25
then it is $0.25 from its high, and therefore, it has retraced
50% from its high ($0.25 of a $0.50 range). In this example,
the “% Off High” column in HotScans would display a reading of
–50%. If the stock is trading at a new high for the day of
$10.51 the “% Off High” will read 0%. Likewise, a new low for
the day is represented by a reading of –100%.
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In the Advanced Filters
section set this filter to “Retraced Less than
20”. See Figure 2 for an example of this setting. This
means that I will only see stocks that are in the top
20% of their range for the day. Using the example above
where the stock has a $0.50 range today, it will only
qualify for my criteria if it is within $0.10 of its
high.
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Figure2:
Percent Retracement from High
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Be Patient!
By combining the two filters—OR
Pattern and Percent From High, I’ve created criteria that
require that the stock be within its OR and near its OR high.
If the stock has had a big run higher and then comes back into
the OR it will not qualify because it will not be in the top
20% of today’s range. If the stock has never left its opening
range, or it has traded slightly above it, then I will be
alerted when it gets to the top 20% of its OR. And since I
began with a Big Volume Now scan, I will see stocks moving up,
down and consolidating all sorted by relative volume in the
scan period (5 minutes).
Examples Using Five
Minute Bar Charts from Today
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The first example is
Toll Brothers (TOL). TOL gapped higher on the open and
set the high of the 30–minute OR as $29.15 in the first
10 minutes. It then sold off to set the low of the
30-minute OR as $28.78 at about 9:55. With the OR set at
a range of $0.37 the criteria I have set will now have
TOL showing up in HotScans when it gets up to the top
20% of that range, or the equivalent of about $0.07 from
the high. The yellow area on the chart indicates where
HotScans was showing TOL as a candidate using these scan
criteria.
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Toll Brothers
(TOL)
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The second example is
Too Inc. (TOO). Here is an example of how this scan may
show you stocks well in advance of their break out. The
yellow area on the chart indicates where HotScans would
have potentially displayed TOO as qualifying using these
scan criteria. Keep in mind that the scan shows you the
top 25 stocks by volume, so TOO will only show up when
it is a volume leader. I found TOO as I was writing this
article so I saw it when the volume came in around 3:15
as it was getting ready to break out!
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Too Inc.,
(TOO)
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These examples make using this
scan look easy. I showed you two situations where the stock
performed as you would like. But keep in mind this scan is not
finding stocks that are necessarily going to break out to the
upside. It is finding stocks with the biggest relative volume
in the scan period that are also at the high of the OR and the
high of the day. The objective of these filter criteria is to
enable you to be watching the stock as it attempts to break
out rather than be alerted after it has moved. As a result,
you may not see big volume until the break out because it is
not a requirement. But that is all right since you are trying
to find the stock before it breaks out, which is where you
really want to see the volume come in. This is another reason
why I don’t have a volume limit on this scan. It's fine if it
has it, but I'd prefer to be early than require it before the
break out.
Also keep in mind that once the
stock breaks out, it will no longer qualify for this scan
because the criteria are that the stock must be in its OR. So
I use this scan as a pop out in conjunction with my break out
scans. It serves as a good source of ideas when I'm
anticipating that the market may rally and I want to find the
right stocks to be focused on before the rally starts. Getting
to a set up early can be good and bad. It is good because you
have time to evaluate the big picture before the stock moves.
This enables you to focus on the most promising set ups. But
it can be bad because you may look at a lot of stocks that
never break out; or you can be tempted to get in too early. Be
careful! The results of these scan criteria can be very
tempting. I don’t know how to emphasize this any stronger than
to say that in a future article I will show you how you can
use the same scan to find stocks to short when they fail from
this area! So don’t get caught buying too soon!
Working the First Half
Hour
Ultimately I end up with 30
minutes as my OR Period setting because that is what I like to
use for my bias for the day. But there are lots of
opportunities to be found in the first half hour using the
Advanced Filters set up as I’ve described. For example, if you
set your OR Period to 30 minutes, then until 10:00 this scan
is showing you all the big volume leaders in your scan period
that are trading in the top 20% of their range for the day.
This means you are seeing stocks with strong volume and price
action relative to their range for the day. Or if you like to
look at other OR periods in the first half hour you can just
change the OR Period setting to do so. I like to look at the
five minute OR until about 9:50. You can also find additional
ideas by changing the scan period from 5 minutes up to 30
minutes to find stocks that have had strong volume over more
than the last 5 minutes.
Here is the Link
I've covered a lot of information in
this article, but if you boil it all down to the basic points,
it is pretty straight forward. This scan will show you stocks
that are trading right below the top of there OR high when the
OR High is also close to the high for the day, and it will
sort the results so that the big volume stocks are at the top
of your HotScans table. The idea is to find the stocks that
look bullish and then track them so you are ready to act if
the stock breaks out. Use it to find a few candidates to
watch. But when your plate is full don't add more! Focus on
the ones you like best.
Here is a link to the scan as I
have discussed it here so that you don't have to enter the
settings yourself.
http://scans.marketgauge.com/Scans/OpeningRange.asp?fid=886
As always, I encourage you to
start slowly and alter it to fit your style. Post or email me
(geoff@marketgauge.com)
with any questions or comments you may have about this
scanning technique. |
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| The
following comments are reprinted from the HotScans User Group
Message Board. |
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It's called analysis
paralysis. I know --I've had it many times. If you are
going to momentum trade and use HotScans, you've got to give up
news, fundamentals etc. and just get in on strong volume after
10:00. Sometimes they run all day, but frequently they are
over in 30-90 minutes. If you spend too long playing woulda,
coulda, shoulda-- you'll miss the trade. |
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| I definitely recommend HotScans.
I was a Wizefinder user for six months and was very
disappointed. The trend had already begun--they were "a day
late and a dollar short." If it's one or the other--definitely
choose HotScans. |
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| I'm in between trips, and have just taken a first quick look
at the new HOTSCANS upgrade; looks super! The developers of HOTSCANS
deserve a fanfare of trumpets for not resting on their laurels and
for making their product an even better trading
tool. |
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HotScans is GREAT! I could probably use
it just as well as a stand-alone along with a real-time
charting program. I personally believe using various MA's etc, with
real-time charting is just as good, and a lot cheaper than [some of
the available trading platforms]. |
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| If you are day trader, HotScans is the best. |
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| I have been using HotScans for 4 days...about 11 trades, all
winners, when using the 400% volume, 30 minute Opening Range, and 5
minute Rallying Now. |
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| You guys at HotScans are great! I look forward to all the new
trading tools coming my way. Thanks for all your hard work and
attention to us, the users. |
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I only had the software
for a month, I might not be
the best person to give advice on best usage of the software.
However, I can honestly tell you our results have been phenomenally
profitable. |
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| Lately with the opening range breakout success, we have been
increasing our shares |
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| I been having great
success with the parameters you
have mentioned. Even though at times I wait for a fresh 8
minute cross, I feel I can catch a few stocks ready to take off. I
believe the last three days my ratio has increased from
3-4 winners to every loser. I am just amazed at how well this
software works. |
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