Lesson Overview

Scanning For Trades

Looking for new trades is much easier than most people believe. Most traders assume that scanning for possible trading set ups takes hours or days even before you find something that is tradable - but this just isn't true. Once you know what to look for the process of scanning for new trades becomes incredibly easy because we can create a strategy for any possible stock set up. Of course there are obvious market situations that have better set ups than others and in this video we'll go through our daily scan of possible trading set ups that takes less than 10 minutes.

Show Video Transcript +

In today's video, I want to talk about how you can scan for trades. Oftentimes, I find when I coach people that scanning for trade seems to be a lot harder than it really is and hopefully I can demystify that today and show you in less than 10 minutes how we scan for trades.

What you’re really looking for when scanning for trades is just unique opportunities and what I call the low hanging fruit. What that means is we’re looking for stocks that have either made a big jump in implied volatility or a big drop in implied volatility.

So something that’s out of the norm or a big percentage move up or a big percentage move down on the day, something that’s out of the norm and stands out as low hanging fruit that would gleam some sort of insight into maybe taking a directional stance on that stock going forward. One of the first things that I do and you can see here on my chart…

Even though you can’t see our watch list because we have it available inside the membership area to purchase, you can see over here that I have ranked all of the stocks on my watch list right now that are moving based on the highest percentage move to the lowest percentage move, so you can see everything that’s moving.

The biggest percentage mover today is right here and then the lowest percentage movers today or the biggest downward movers are down at the bottom. The reason I do this just to start is because I want to see what's moving, so what has had a huge move up or a huge move down that may warrant a trade.

One of the ones that we look at if we sort this by biggest move down is that this stock today has had a 6% move down and if we actually look over at the charts, this is actually a look at Tesla.

Tesla has had about a 6% drop today, a pretty good drop in a move down and that really leads us to believe that maybe there’s a trading opportunity here because of the drop lower.

And you can see that it’s gapped lower and dropped lower, implied volatility is starting to spike, so maybe we might have some sort of trading opportunity there. The next lowest one down is going to be PBR.

This is another one that has had a really big move down today, it’s the next biggest percentage move down. But you can see after we start looking at the chart here that it's not really a stand out, there’s no low hanging fruit.

It hasn’t gapped lower dramatically, it hasn’t popped up dramatically, but implied volatility is starting to steadily rise and we start to see that MACD is continuing to move higher, so maybe there’s some sort of opportunity there as well.

That’s one thing that we look for. We definitely look for those stocks that have made big moves. That’s an easy way to find new things to trade. If it's something in the middle of the range here like this stock for example, it's down about half a percent today, this is Netflix, not really that big of a move for us to really go after.

We can trade this stock, but that doesn't mean that we should trade it because it's not doing anything major today, it’s just trading in the same old range that it's been in.

You can see with Netflix, even though it was down on the day, it’s just trading in the same range that it’s been in, implied volatility is high, but it’s heading into earnings, so there's nothing really to gleam out of that, you can just go ahead and skip over it.

The other thing that we like to do is sort our list by high implied volatility stocks. Stocks that are new stocks to the list that have recent high implied volatility, we might want to take a look at.

Since we look at this list every single day, we know that we've got lots of stocks right now that are over that 50th percentile that we like to see.

But if there is for example some stocks that just made it onto the list today or the other day and have moved from say the low 40s up into the low 50s in implied volatility rank, that might give us another indication of something that is now tradable that wasn’t tradable before.

For example: This stock right here is FXI and it just moved up to a 52 implied volatility and you can see implied volatility actually was higher than 52, but it’s now starting to be 52. We can look at this chart and say maybe FXI is another trading opportunity before it dips under 50.

If it was higher before and now it’s starting to come back down lower, maybe this is an opportunity where we can trade implied volatility before it really makes a big dip down below the 50th percentile.

That’s the kind of stuff that we’re looking for. We’re looking for the low hanging fruit, things that are moving up. I know that today… SPY was another trade and you can see SPY is right here on our watch list to the left.

It has 69% implied volatility, but just the other day, it was down on the 40s and 30s. You start to see that implied volatility is rising in SPY and as a result, we have orders that we’re trying to get into the market to trade this security because implied volatility is starting to rise and it's now in the 70th percentile.

A very high implied volatility leads us to believe that there’s an opportunity here to trade something in it. That's really how we start to look for and scan for trades. There’s other ways that you can scan for trades with technical analysis by going through and using these scan tab inside Thinkorswim.

There’s a really cool way that you can study, filter things by different indicators. For example: If you wanted to look up and pull up all stocks that had (and if I just add that study indicator) a MACD crossover that was from negative to positive, then you could do that inside Thinkorswim.

It’s a really cool tool to use because you can study, filter all of these stocks and look specifically for stocks that have a MACD histogram crossover that went from negative to positive based on some set of inputs.

If we just use this one here, we can go ahead and click scan. Now we’ll pull up all the stocks with options that are tradable that we can do that have a MACD crossover from a low point to a high point.

You can see the first one on the list here is USO (this is pretty interesting) or the only one in the list which is pretty cool because now it’s narrowed it down even more. Alright, I truly hope you guys enjoyed today's video.

Like I said, if you have any comments or questions, please ask them right below on the lesson page. The key here with scanning for trades is that you don't go through analysis paralysis.

Have some set of defined filters or studies that you want to look for or types of trading setups that you're looking for and look for those quickly in the morning through your short liquid watch list anyway and if there’s something to trade, make a trade on it, if there's not, then don't force it.

Don't force a trade into the market just for the sake of trading. We want to make sure that we’re making smart good trades and that’s really the key here at Option Alpha, is teaching you how to make smarter and better trades. As always, if you guys have any questions, please let me know. Until next time, happy trading!

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