How to Select Stocks for Trading Success and Building Your Opportunity Universe

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / How to Select Stocks for Trading Success and Building Your Opportunity Universe

Lookback period

The lookback period is the amount of candles you wish to use when making a trading decision. For example, if you set the lookback period at 3 months, you are viewing today’s candle in light of the past 3 months’ data. This gives you an idea of how today’s price action relates to the prices from the previous 3 months.

For swing trading opportunities, a look back period of at least 6 months to 1 year is recommended. However, scalpers should consider the last 5 days data for optimal results.

When plotting the S&R levels, it is advised to expand the look back period to a minimum of two years.

The opportunity universe

The sheer number of listed stocks on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), combined, could be overwhelming. Obviously, trying to scan through them all every day will be difficult – if not impossible. Over time you should identify a select group of stocks that you are comfortable trading. These stocks form your ‘Opportunity Universe’. Once you have done so, it is much more manageable to survey this smaller selection for potential trading opportunities on a daily basis.

Here are some pointers to select stocks to build your opportunity universe:

  1. Ensure the stock has sufficient liquidity by examining the bid-ask spread. The narrower the spread, the more liquid the stock will be.
  1. Alternatively, you can have ‘minimum volume criteria’. To illustrate, consider stocks that have a daily volume of at least 500000.
  1. Ensure that the stocks are in the ‘EQ’ segment since they are suitable for day trading. I agree, it is not advisable for new traders to attempt this type of trade; however, if a positional trade is initiated and the goal is met on the same day then there would be no real damage from closing it during that period.
  1. This can be tricky, but ensure the stock is not being manipulated. Unfortunately, there isn’t a definitive way to tell if it’s being controlled – this is something you’ll learn through experience.

If you have difficulty locating stocks that meet the requirements, it may be wise to opt for some of the Nifty 50 or Sensex 30 stocks. Also referred to as index stocks, these have been carefully selected by exchanges to fulfil various parameters – including those discussed above.

Investing in the Nifty 50 may be a beneficial approach for both swing traders and scalpers. This group of stocks provides an ideal opportunity to explore.

The Scout

We now look at how to pinpoint trading opportunities, especially for a swing trader. This process is beneficial in assisting us to select stocks appropriately.

We have now set the 4 important aspects –

  1. The charting software
  1. Timeframe – End of Day data
  1. Opportunity Universe – Nifty 50 stocks
  1. Trade type – Positional trades with an option to square off intraday, provided the target hits the same day.
  1. Look back period – Between 6 months to 1 year. Increase to 2 years while plotting the S&R level

After attending to the practical matters, I will now proceed to outline my approach in searching for trading opportunities. This process is split into two sections.