A common question I receive is, “How do I find the best markets to trade?”
The inquiry comes mostly from stock traders, but it’s applicable to futures and forex traders as well.
There are several approaches that can be taken. Here are the ones that I use:
- Use a scanner to find stocks that are currently qualifying for a certain technical setup. This requires the use of a computer program that can search the entire universe of stocks based on meeting the parameters you set for various technical indicators and/or price patterns. You can do this with fundamental data as well if you like.
- Establish a set “watch list” of markets that you continually monitor for trades. This is typically done with a smaller number of markets – ones that are not highly correlated to each other.
- Measure the relative strength of various markets in relation to each other. In contrast to approach #2 above, this is conducted with markets that are correlated to each other. This approach can be used to find the best stock in the best sector in the best industry … or it can be used to find undervalued securities. This is also a great approach for find the best forex pair or futures market to trade.
Exchange Traded Funds (ETFs) are a wonderful way to take advantage of many opportunities that were not formerly available to retail traders. There are now ETFs for everything from agricultural commodities, various countries, currencies, metals, bonds, energy, and all the different sectors and industries of the stock market.
This is a huge advantage because it provides more opportunities beyond just traditional stock trading.
When the stock market is down, there will be another non-correlated market that is up. There are always opportunities. The key, as is always the case in trading, is to be flexible.
This is one of the most critical aspects of trading.
During the tech rally of the late 1990s you didn’t need to be a genius to be a successful trader. All you had to do was buy into the Nasdaq! Raging bull markets will forgive a lot of amateur trading mistakes. You just have to be in.
Here’s the key:
There’s always a great market which can make it easy for you. Finding that market, and trading it, is a huge part of becoming a profitable trader.
In my upcoming course on Swing Trading, I’ll be going into great detail on exactly how I find these opportunities in my own trading and investing:
- Which scanner I use.
- Which markets are in my watchlist.
- How I easily determine the strongest markets, and the most undervalued markets that are primed for a major, sometimes multi-year, reversal of fortune.
- How to get out before the raging bull markets crash.
- How to protect yourself from dramatic overnight gaps against your position.
Please leave your comments or questions by clicking on the green “Comments” link at the very bottom of this entry.
Barry,
On the same subject, it would be nice if you could give some advice on the size and mix of a portfolio.
Sometimes I have the problem of looking at too many symbols looking for setups to cherry-pick from.
How to build a portfolio would be nice to cover in the course.
Also, what index do you measure commodities and futures to tell which instruments are going stronger or weaker than the index? The CRB?
Thanks
Dear Barry
I wish if you can advice about the market internals ( Tick & Trin ) indicators, how they perform ? and where you can find brokers platforms that have the these indicators charts.
Thanks alot for your continious support.
Hi Gamal,
Thanks for your question. I don’t use Trin at all. Tick I use a bit, but don’t rely on it heavily. Later this year I’ll be coming out with an Intermediate Level course in Day Trading that will cover the Tick Indicator and other market internals. Many charting platforms offer those indicators. It actually is more dependent on your datafeed as they are symbols, like stock symbols. that you put into your chart. I know eSignal and Tradestation have them, and I’m sure there are many others.
Looking forward to this upcoming course.
Stewarts remarks feelings of people at large
Hi Barry,
It is great that you create educational material for us to become better traders. Why can’t you create a service where people pay a fee for your recommendations using the same information. I think of it as a kind of filter. I use many services as filters to see what recommendations are confirmed and not. does this make sense?
Regards
Mike
Hi Barry,
I can really relate to your comments re stop loss orders failing to register. Recently was in a trade on S&P Eminis on Ninja Trader when my limit order was activated on a very sharp move in response to an unscheduled news event and my stop loss failed to register at all. Usually it will register with some pretty severe slippage, but on this occasion, I was left totally exposed to the market and forced to close out the trade at a hefty loss when I discovered my predicament some time later. I am now very wary about leaving a pending order unmonitored for any length of time and only raise this issue in the hope that it may make your readers more aware that this can happen.
Regards
TIM