Garsworld - Stock Screening - Stock Trading Software, Day Trading Systems, Stock Screener, Stock Trading, Online Stock Trading, Day Trading

Screening is a method of formulating a list of stocks that you watch every day; it is a method of narrowing the field. One reason this is important is that following all stocks on the major exchanges would be too cumbersome, if not impossible. For instance, the NASDAQ alone contains over 7,000 stocks; the NYSE contains several thousand more. Not only would you be unable to properly study each stock, in actual practice, only a relatively small number of these get most of the market action, and even a smaller number than that are worth trading.

Screening narrows the field, making your list more manageable. Your goal is to reduce the number of stocks that you are watching to only a few hundred.

Introduction to the
OracleTrader

See StockVision on this web site.

The theory behind the StockVision is that the price and volume action of a stock, when interpreted properly, reveals the most likely behavior of that stock in the near future. The common term that describes this theory is called technical analysis.

In the broadest sense, technical analysis is the study of stock charts patterns, which many traders claim can predict the stock's most probable future behavior. This differs from fundamental analysis, or the study of the underlying company itself—earnings, cash flow, future growth, etc. There is much debate in Wall Street circles about the pros and cons of technical versus fundamental analysis, but as a rule, short-term traders tend to rely on technical analysis, while long-term investors tend to pay more attention to fundamental analysis. For the purposes of trading, we will mostly concentrate on technical analysis.

Although technical analysis has gained more popularity amongst investors in recent times, it is often criticized by traditional financial advisors who rely purely on fundamentals. Some of these advisors have even equated technical analysis to reading tea leaves and fortune telling. However, those who make such analogies not only misunderstand technical analysis, they do not realize that the basis behind all stock chart patterns is the very fundamental information that the analysts so covets.

In other words, the power behind technical analysis is the fact that everything there is to know about a company, its past, present and future is reflected in its stock chart. This is because the price and volume action is essentially a composite “poll” of every investor and trader that is trading the stock.

Hence, the price and volume action (which develop specific, recognizable patterns) will theoretically reflect all possible information that is available to everyone trading the stock, including professionals, insiders, and even the very analyst who doesn’t think chart patterns are important. When interpreted properly, how could there be a better source of information than the stock’s chart patterns? It is quite literally the same as employing tens of thousands of top-notch investors, working for you every minute. In this respect, the true “oracle” of the market is the historical pattern of a stock, as well as its current action in today’s session.

Downloading

If you have not done so already, you can download the OraleTrader from our download page.

The Oracle Engine

If a stock chart pattern reflects the composite opinion of all traders and investors, the obvious key would be the proper interpretation of this data. This is where the StockVision comes in, because its sole purpose is to interpret a stock’s price and volume action in order to evaluate its most probable, future path.

During the development of the Oracle, tens of thousands of charts were analyzed by the computer to determine what patterns were the most influential in determining the stock's future behavior. Beginning with all of the most popular indicators used by traders, our researched narrowed it down to a handful of technical patterns that were truly influential to the stock’s future behavior. The result was a highly reliable rating system for stocks, purely based on its most recent chart data.

A typical list from the StockVision shows above. The rating system, although
appearing rather simple, is the result of thousands of computations every minute.

The Oracle works with real-time market data to rate several hundred stocks at once, revealing the “best” and the “worst.” On the surface, the rating system might appear overly simplistic, but behind the scene, thousands of factors are being evaluated and weighed every second, and the best possible choices for trading are presented in various lists.

The Stock Analysis List

The Stock Analysis list consists of about 1700 stocks, each of which are continuously rated throughout the day. The best way to understand this list is to view it as a "sreadsheet," in which you can sort by various columns to quickly zoom in on the criteria of interest.

The most significant columns in this "spreadsheet" are the five columns on the far right. These represent key technical indicators, where a checkmark in the column means "yes."

For example, if a stock is breaking out of a recent trading range, and with above-normal volume, the "B/O" column with have a blue checkmark. If a stock is breaking below a recent range, "B/O" will have a red checkmark. By clicking on this column heading, you can quickly sort by "blue" or "red" checkmarks, effectively viewing all stocks breaking out or breaking down.

The five right columns are B/O, M/X, Crv, RSI, and A/D, which indicate the following.

B/O - Breakout. Breaking out of a recent trading range with above average volume. This often indicates a powerful move to the upside will soon follow. A blue checkmark means the stock is breaking out, a red checkmark means it is breaking down.

M/X - MACD Crossover. The MACD signal is a powerful technical indicator that often predicts direction. It consists of two lines, roughly indicating two different moving averages. When these two lines cross, that often indicates a change in trend. Hence, the MACD Crossover can help you locate a stock that has changed its direction. Blue means a change to the upside, while red means a change to the downside.

Crv - MACD Curve. Similar to MACD Crossover, the "curve" is when the MACD line(s) are "curved" to the upside or downside. This often indicates a change in direction, but earlier than the crossover. A blue checkmark means there has been a curve to the upside, while a red check means a curve to the downside.

RSI - Relative Strength Indicator. This is used by traders to indicate an overbought or oversold condition. A blue checkmark means the stock is likely oversold, while a red check means overbought.

A/D - Accumulation and Distribution. This indicates a recent net gain in average volume. Usually, a change in volume can mean the big money has interest in the stock, and it could be prudent to ride the wave. A blue checkmark means the stock has suddenly increased its upside volume, while a red check indicates downside volume has taken over.

The primary function and purpose of the Oracle is not so much to pick specific winners, but rather, to screen stocks. By screening is meant to begin with a list of hundreds of stocks, then reducing that number to a more manageable list through a process of elimination. In this case, the Oracle applies its dynamic rating system to narrow the field down to 20 or 30 stocks that are the best candidates to make a strong move in one direction or another.

Those who have been using our web site for a while will fully appreciate the significance and power of such a screen. Prior to the advent of the Oracle, we would essentially screen stocks by manually. Typically, we would begin with about 300 stocks, then sort by various criteria throughout the day (such as volume increase or a sharp rise in price), then walk through the top 20 or 30 and pick out the most promising choices. By comparison, this manual method was both slow and inaccurate. The Oracle, however, not only performs this process instantaneously, it screens over 1,700 stocks, and in real-time, as the market moves.

Throughout the remainder of this course, we will be referring to the StockVision when it relates to a specific trading technique or strategy.

Alternate Screening

It is highly recommended that you use the Oracle for all your stock screening. But since the Oracle is fee-based at Garsworld.com, it is possible that you will need an alternative method of screening stocks should the software become unavailable and/or if you no longer subscribe. The following section describes how to screen for stocks manually. This is an optional section of this course, and you can skip in for now if you plan on using the Oracle for screening.

Your first step in creating a manageable list is to eliminate all stocks that fall outside of minimum and maximum ranges. Assuming that you begin with a giant list of all publicly traded stocks on the NASDAQ and NYSE, you would reduce the list as follows.

After screening all the stocks on the NASDAQ and NYSE with the above criteria, you will have eliminated 2/3 of the field, which as far more manageable. We will refer to this list throughout this course as the Basic List. From this point, you will create even smaller watch lists by using fundamental and technical analysis applied to these stocks, which we will explain in the next few pages.

A watch list is a term we will be using to describe a list of stocks that has been narrowed to a tiny handful, usually 10 or less stocks. The watch list contains stocks that you are, well, watching, and it is from this list that you make real trading decisions.

A watch list differs from a trading list, both in size and in use. Trading lists are used on an ongoing basis, and they consist of a few hundred stocks that are potential candidates for your watch list. In other words, you screen your larger trading list to come up with the best candidates for trading during the day.

There are basically two types of watch lists you will formulate each day, and each of these lists are derived from your trading lists (your trading lists are larger lists, consisting of a few hundred top trading stocks).

Why use two watch lists? For one thing, each of these two lists serve a slightly different purpose. Your daily watch list narrows the field to those that you are certain to watch all day, while the intra-day list presents opportunities for quick trades during a smaller period of time (say, in the early morning action only, or late-day action, etc.).

But there is another—and perhaps a more significant reason—to use two different watch lists, and that is to prevent missed opportunities. The daily watch list, for instance, zooms in on stocks that you really should be watching that you might otherwise miss if you only formulated an intra-day list. The intra day list, on the other hand, locates opportune trades that you could have missed on your daily list, etc.

In either case, both lists have one thing in common: you trade the stocks on your watch list, and only on your list. It is this narrowed focus that greatly increases your chances of success!