Finding stocks to trade

A part of almost every trader's trading plan is finding stocks to trade.  There are many free and subscription websites out there to do this and there really is no right or wrong way to look for stocks as long as you are looking for stocks to fit your specific trading plan.

I used to use a subscription website, which was very useful and had great searches.  It was Investools website.  However, I found another website which I like quite a bit and it's free, it's www.finviz.com

On Finviz, you can do searches and even save specific searches to use at another time.  This makes for quick stock searching.

When I search for a stock, I'm looking for a few basic items:

1.  Volume - I want at least 500,000 shares traded daily.  The reason is because I want the bid/ask spread from the broker to be narrow and want to be able to get out of the trade quickly when needed.

2.  Optionable - since I trade options, I gotta have a stock that offers them.

3.  Price - I like stock prices between $15 - $80.  The reason for this is that I need room for downside plays, so $15 still has plenty of room to go down.  On the other side, I don't want a stock too expensive because that makes the options expensive as well.  There's TONS of stocks in that price range and I rarely have a hard time finding them in that range.

Those are my main 3 things I look for - in addition to trends, patterns, and support/resistance of course.  However, I sometimes will look at Relative Volume and use a setting of "3".  Relative Volume is a ratio between the current day's volume and it's 3 month average.  The setting of "3" means that the current day's volume is 3X higher than it's 3 month average volume - so way more than normal activity going on in that stock.

Another thing I sometimes use to filter my search is individual Industry Groups.  If Basic Materials are trading relatively stronger than the other industry groups, then I'll look for bullish plays within that group.  Or if, Biotechnology is trading weaker than other industry groups, then I'll look for bearish plays within that group.

After I do my searches and find stocks that fit what I'm looking for, I then will put them into a watchlist on my trading software.  This way I can quickly look at them every day for entries.  

ThinkOrSwim has a charting system called Prophet that allows you to have these watchlists.  Then you can quickly pull up your watchlist every day and just scroll down each stock's chart to see if you have an entry to trade.  Look at the screen shot above - the far left middle section has a list of stocks in my watch list that I look at every day.  I can scroll down the entire list (currently about 60) in about 5 minutes or less by having it set up this way.

A lot of traders will do searches once a week, which I think works fairly well.  I'm to the point where I'm very quick with my searches, they take me about 20 minutes, so I actually do mine everyday.  I do this especially when I'm using Relative Volume, because you never know when a major event is going to happen in a stock and you may be able to catch some good movement compared to finding this stock with your next weekly search and missing most of the move.

Another way to find stocks is from other websites.  Option Addict puts up his watchlist every week and provides outstanding stocks to watch.  Another great site is Dave Johnson's Chart Signals.  In addition, you can find TONS of trading websites out there that put up their stock picks as well - just do a little searching.

Your trading plan should include searches that are done the same time every week, or even day.  You always need to keep replenishing your stock watch list because stocks are always moving and when they don't move like you thought they may (while on your watch list) then you'll delete them from your watch list.  Of course, when they do move like you thought, then you'll take action and make an entry.  So, your watch list is ever changing - just like the market itself.