2 Step Stock Screening can help you make more money. Plain and simple. You see…
While stock screeners are a powerful tool, 2 step stock screening takes the analysis even further.
The truth is…
Basic stock screening is a bit simplistic. Most investors and traders only screen for fundamental or technical analysis, depending on their personal preferences and stock market style. But this one-dimensional view of stock picking can leave you high and dry. To make matters worse…
Even investors who focus on hybrid fundamental and technical analysis in their stock screeners can still sustain serious capital losses if they avoid 2 step stock screening. So what is 2-step stock screening exactly?
Introduction to 2 Step Stock Screening:
2 step stock screening literally takes your stock pick analysis one step further. It’s a simple way of saying your stock screen is only a starting point: an easy way to zoom in on ideas of interest.
But that’s about all they are good for.
Let me explain:
If you blindly buy the results of your stock screens without bringing that information into context, you’ll leave yourself open to a lot of information gaps. While you can buy stocks on the wrong premise and still make money, your risk management system must be perfect. And it’s far easier to invest and trade with conviction when you have a clear picture of what’s going.
Stock screening is great to show you where to focus. But to really get conviction you need to take it a step further and think critically about the results of your stock screen. Do you want to see what this looks like in practice?
2 Step Stock Screening For Technical Analysis:
2 step stock screening can be of huge benefit to momentum traders who use technical analysis. Whether you’re a day trader or swing trader you can use 2 step stock screening to improve the results of your technical analysis stock screens and risk management systems.
There’s just one key thing to remember about 2 step stock screening for technical analysis…
Stock screens based in technical analysis only provide a snapshot picture in time. While they may prove promising at first, the chart patterns you see are always evolving, right?
If you want to apply 2 step stock trading to improve your results with technical analysis, the key thing is to continue to watch the results of your stock screen in real time.
For example:If you’re planning to get long after an oversold bounce then wait for strength to come in. Wait for the market to prove your stock screen right before buying the stock. Wait for confirmation you’re right before trying to catch a falling knife.
2 Step stock screening is about intelligently putting the results of your best stock screeners into context and waiting for confirmation from the market. Make sense? Here’s another example:
2 Step Stock Screening for Swing Traders:
Swing traders often look for mean reversion trades to make quick money. They will screen for oversold stocks using indicators like RSI and recent performance. The list of stocks generated by the screener is step 1. The more important next step is…
Monitor the stocks on your screen. Check in on them every 15 or 30 minutes. When you start to see the oversold bounce materialize (which is the thesis of your trade), then you step in and place your buy order. Make your technical analysis dependent on the stock screen plus another criteria that is time dependent (eg as 30 minute or daily stock crosses 20 ma on volume you will buy the oversold bounce… but you won’t buy if the stock keeps going lower).
Does that make sense?
Fundamental analysis works best when you use stock screens as a starting point too…
2 Step Stock Screening For Fundamental Analysis:
Stock screening works very well for fundamental analysis because the financial statements on which the analysis is based can be broken down into a number of key ratios and metrics. This makes it easy to splice and dice data based on common investor benchmarks like price to earnings ratio and price to book value. Right?
But financial statements out of context can be very misleading. You need to go a step further and put the information into context. You need to understand why these stocks have low price to book value, or if their earnings can continue to grow uninterrupted. Make sense?
Just remember that stock screens are a starting point. They’re very useful, but you need to go a step further and do your own analysis. 2 Step stock screening takes a little more time, but it can really help you preserve your capital and improve your chance of hitting a home run.
And by The Way: If you want more information on stock screening tips and techniques, sign up for my free e-book by entering your email address into the form below. I’ll send you my favorite free tools and resources once a week.