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Step 2—Set Your Filters[1]

[1] This won’t be necessary if you choose to trade just one stock. For example, many traders simply trade the SPY, which is the stock derivative equivalent of the S&P 500 index. By and large the SPY mimics the movement of the S&P 500 and has its own options chain, so you can trade the options too. Personally, I’ll trade the SPY but only on the high-probability scenarios. Remember, there’s no shame in sitting on the sidelines if you’re not sure or if your entry requirements are not met.

You can build sophisticated filters on even the most reasonably priced charting packages nowadays, such as TCNet (Telecharts 2000), which now comes with real time data.

What Do You Filter For?

This depends on your personal preferences. I filter specifically for moving or “thrusting” stocks (DiNapoli, 1998)—for example, stocks that have moved up or down for more than ten periods (days or weeks) in a row. I always use the daily filters first and have so far never needed to use the weekly settings considering there are always plenty of opportunities whether the market is up, down, or even sideways. I also backdate the search so that I can see stocks that had been thrusting up to a week ago but may be turning now.


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