Market Scan is a very powerful yet complex app and it can be a daunting experience for the novice stock trader to create your own customized scans. Below we have a short step-by-step process to creating your own trend reversal scan and the thought process behind each parameter that is added.
Filter 1: Average Directional Index (ADX) breaking above 20
The Average Directional Index (ADX) is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend.
The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.
ADX can also be used to identify the potential start of a new trend in the market. Very simply, traders will look from below the 20 line to above the 20 line as a signal that the market may be beginning a new trend. The longer the market has been ranging, the greater the weight that most traders will give this signal.
See the yellow highlighted section on the screen below.
A Couple of reminders
- The text color of the button will turn green to show that there is a selection made with that indicator (see button “ADX”).
- Date selection is “1”, meaning we’re filtering the previous trading day or one day back.
Filter 2: ADX pointing up
This is to make sure that yesterday’s break is still valid.
As seen from the screenshot, Market Scan gave us 6 less stocks by eliminating the false signals.
Date selection is “0”, meaning we’re filtering the last trading day, or zero days back.
Filter 3: Williams %R values above -20
(If you want to search for Oversold stocks use “below -80” instead of “above -20”)
The Williams %R indicator is a momentum oscillator used to measure overbought and oversold levels. It’s very similar to the Stochastic Oscillator except that the %R is plotted on a negative scale from 0 to -100 and has no internal smoothing. The %R defines the relationship of the close price relative to the High-Low range over n-Periods. The nearer the close price is to the highest high of the range the closer to zero the reading will be. Alternatively, the nearer the close price is to the lowest low of the range the closer to -100 the reading will be. If the close price equals the highest high of the range the reading will be 0; if the close price equals the lowest low of the range to reading will be -100.
As an overbought/oversold indicator, Williams %R values from 0 to -20 are considered overbought while values from -80 to -100 are considered oversold.
Here is the list of stocks that meet the three criteria listed above
Does this mean that these stocks will go up or down the next trading day? Of course not. This is just a scanning tool for you to filter the stock market so you can save time and find profitable investment opportunities.
If you would like to scan the market with the same criteria going forward, you need to save your scan. Saved scans are automatically updated with End of Day data. You can view it anytime by going to “My Scans” from the menu bar. Saved scans also help you check your watchlist against your scans. This information is listed under “Alerts” tab.
If you have any questions, please feel free to email us or leave a comment below.
Market Scan is stock market scanning tool for the iPad, you can learn more about it and purchase it from the iTunes App Store by clicking here.