Planning Scans

Planning Scans

Before you write a scan to find stocks in our scan engine, you first need to decide what kind of stocks you are looking for. Taking the time to plan your scan will pay off in more targeted and actionable scan results.

A robust scan has three main parts:

  • Defining the universe - Which group of stocks or ETFs are you willing to invest in? This comprises your “universe” of securities.
  • Refining the universe with technical conditions - What technical indicator setup would make you interested in watching a particular stock?
  • Watching for a signal - What change in indicator values would make you want to buy that stock today?

Defining the Universe

If you're only interested in S&P 500 stocks, mutual funds or London stocks, then there's no sense in searching the tens of thousands of stocks in our scan engine. Instead, limit your universe to only the groups of stocks that you would potentially invest in.

Using our scan engine syntax, you can restrict your search criteria to certain types of securities (e.g. stocks, ETFs, mutual funds), certain exchanges or countries, members of specific index groups (e.g. Dow Jones Industrial Average or the Nasdaq 100), certain sectors or industries and more. You can also define your universe using basic price and volume information, such as Canadian stocks that averaged at least $10 in price and 40,000 in volume over the last 60 trading days.

Placing these kinds of universe-defining statements at the beginning of your scan not only limits the results to a more manageable size, but has the added benefit of speeding up your scan. If your scan is only searching the 400 stocks in the S&P 400, it will run much more quickly than if it is searching the thousands of stocks in our database.

Tip: If you find yourself using the same universe-defining criteria in scan after scan, put those criteria in a saved scan so you can quickly call them up each time you create a new scan. See our Scan Templates article in the Support Center for step-by-step instructions.

Refining with Technical Conditions

In addition to specifying the general group of stocks to search, you can add technical requirements that further limit your universe.

For example, if you are looking for stocks where the bigger trend is up, then you want your scan to only find stocks that are in a longer-term uptrend. You could require price to be above the 200-day simple moving average (SMA) and/or require the 50-day SMA to be above the 200-day SMA, conditions which are usually true when a stock is in an uptrend.

You may also want to add conditions to ensure that the stock hasn't already made its big move. For example, you could add a technical condition limiting your results to stocks where the PPO is less than 1%. Higher PPO values usually indicate that a big move has already taken place and it is no longer a good time to buy.

Watching for a Signal

Once you've defined your universe of stocks and the technical conditions that must be present, you may still be left with a lot of stocks in your scan results. More importantly, these stocks may have been meeting your criteria for weeks or months. How do you know that you want to invest in a stock right now? That's where signals come in.

A signal indicates something that is happening today (not yesterday or last week or last month) that tells you now is the right time to buy. Unlike other scan criteria, which just checks whether the stock met the requirements or not, the signal adds a time component, in order to check whether the stock just started meeting the criteria today.

This is usually accomplished with crossover scan criteria, such as MACD crossing above zero or price crossing above its 50-day SMA. A stock doesn't cross over a threshold over the course of weeks or months; it crosses over on a certain day, signaling that it is time to buy.

Choosing Conditions and Signals

How do you decide which conditions and signals to use in your scan? Our recommendation is to study charts for stocks that you wish you'd invested in.

To start with, identify the timeframe where you would like to have purchased a particular stock. Next, look at several indicators for the stock to see what the indicator values were doing during that buy timeframe. If an indicator behaves consistently across your charts during that timeframe, then that may make a good technical condition to refine your universe. For example, if most of your charts show the PMO rising during their buy timeframe, you may want to add that condition to your scan.

Next, look for crossover signals that happen during the buy timeframe on your charts. If an indicator consistently crosses a certain threshold during that timeframe, then that crossover is a potential signal. Building on our example above, if the PMO crosses its signal line during the buy timeframe on many of your charts, you may want to use that as the signal for your scan.

A final note about choosing conditions and signals: beware of multicollinearity. If you scan for multiple indicators that all measure momentum, it may skew your perception of how strong the momentum really is for the stocks in your results. It's better to use no more than one indicator per category in your scan.

Learn More: Multicollinearity

Now that you know what you want to include in your scan, read on to learn how to build your scan in the Advanced Scan Workbench.

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