Building a stock screen that fits your trading style is the key to finding winning stock plays.

Today, I’m going to show you how you can make a quick, 3-minute stock scan that will help lay the groundwork for consistent trading gains. Best of all, this screen is completely customizable. Once you know the framework, you can tweak the screen to help pinpoint the stocks you want to trade…

Last week, I showed you a step-by-step process I use to search for potential short squeezes. The tutorial prompted many of you to ask about additional stock screen ideas to help in quest to become an active trader.

To give you a quick boost, I’m going to help you begin your quest to become a more self-sufficient trader right now– even if you’ve never screened for stocks before. I’ll also continue to share additional screening ideas with you over the next several weeks. To keep all these ideas organized (and to use as quick reference if you’re looking to change-up some of your scanning criteria in the future) I recommend that you print out my scans. You can keep them in a notebook at your trading station for future reference.

Before I reveal today’s screen criteria, you need to understand that there are several steps you must take to become a consistently profitable trader. The first and most important of these steps is paper trading.

Paper trading is exactly what it sounds like. You plan and execute your trades using real market prices — without risking real money. Instead, you simply keep track of your trades in a notebook or on your computer.

Paper trading is an exceptional way to kick-start your trading success for a couple of reasons. First, it allows you to build confidence in your methods while removing the possibility of a catastrophic mistake. More importantly, the act of paper trading creates a positive habit you can carry with you when you begin to put actual money on the line. If you can turn your paper trading exercise into a live trading journal, you will have the opportunity to review your winning and losing trades every single month, allowing you to adjust stop losses and perfect entries and exits to best suit your individual trading style.

Now you’re ready to begin using my 3-minute scan. Let’s get started…

For demonstration purposes, I’ll begin our screen using the Financial Visualizations site Finviz.com (of course, you can use the stock screener of your choice. But if you’re just getting started, it will be easier to follow along with me if we’re on the same site).

Go to Finviz and select “Screener” from the top menu bar. This will take you to the main stock screen page where you can begin to enter the following criteria:

1. Defense.

The very first thing we want to do is eliminate the stocks we don’t want to trade from our results. These are the low-volume and potentially volatile stocks that can trap you in a losing position.

Under the main “Descriptive” tab in the screener, you should select stocks with average trading volume of more than 100,000 shares. This will weed out all of those low-volume stocks you’ll want to avoid.

Finviz already narrows your search to stocks trading on major U.S. exchanges. You can also limit the search to stocks within a certain price range. For this screen, I want to only look for stocks trading for more than $1:

2. Find uptrending names.

Now that we’ve entered our basic criteria, we want to narrow our search to stocks that are trending higher. A simple way to do this is to search for stocks where the moving averages are properly stacked. We want the 20-day moving average to be above the 50-day, and the 50-day to be above the 200-day. That’s the shorter-term moving average on top, and the longer term average on the bottom.

To plug in these parameters, go to the “technical” tab and select “SMA20 above SMA50” in the 20-Day Simple Moving Average tab. Then select “SMA50 above SMA 200” in the 50-Day Simple Moving Average tab:

3. Searching for breakouts.

Here’s the fun part: finding the stocks with the most potential to break out in the near future. This final step is where you should focus your creativity.

There are tons of techniques you can employ here. One of the simplest is to search for stocks that are making new shorter-term highs, yet are still below longer-term highs. Ideally, these will be the uptrending stocks that are almost finished digesting recent gains…

Select “New High” under the 20-Day High/Low tab. Then select “0-3% below High” under the 50-Day High/Low tab:

There it is — a quick 3-minute scan you can use to kick-start your trading. If you run this screen tonight, it should give you more than 70 stocks.

Obviously, not all of these names will produce actionable trades. To narrow the list further, you can sift through the charts to find the most attractive set-ups and patterns.

Over the next several editions of Trend Playbook, I’ll continue to explore a few different metrics you can substitute to find potentially profitable trades.

If you have a question about this screen — or if you have a specific set-up you’d like to see me review — contact me at trendplaybook@agorafinancial.com. I’ll do my best to answer your questions in the next installment.

Best,

Greg Guenthner

Questions or comments? Drop us a line at trendplaybook@agorafinancial.com.

Related Posts

• August 31, 2012 -- Book Profits from this “3-Minute Scan”
• September 10, 2012 -- The Secret Art of Trading Chart Patterns
• January 2, 2013 -- Don’t Fear a Fundamental Filter
• September 12, 2012 -- How to Trade Bullish Crossovers
• November 30, 2012 -- How to Find Bottoming Stocks

Greg Guenthner

Greg Guenthner, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes. He is also the editor of Agora Financial’s Trend Playbook, a free resource for trend followers and technical traders. For close to a decade, Greg has led Agora Financial’s small-cap division, where he founded one of one of the only independent OTC research advisories in the industry. Greg specializes is classical trading techniques and combines timing strategies with his fundamental analysis of small-cap stocks.

He is a member of the Market Technicians Association and hold the Chartered Market Technician designation. 

View articles by Greg Guenthner