A trader can use screening tools to find stock catalysts. However, what settings can look for them?
Well, Amibroker is said to find them every day, with the AFL code below. It is a tool reported to be actually more effective than technical indicators.
However, manual observation is still a need because computers can’t understand the price action on this post.
We use computers for technical analysis to predict if the stock price will go up in the next few days.
Predicting stock movements requires a stock screener to find catalysts, and it is often a recommendation by traders. (source)
The recommendation usually includes price action and volume.
However, additional criteria are usually not as important or a need.
What criteria to use?
It is important that traders use scanners that are simple and effective.
This post argues that one can find a catalyst in stocks using only price action and volume.
It is not only about support and resistance levels which technicians make someone believe to be true.
After reading this post, one can observe the stock market and look for himself whether the strategy shared here is effective.
The intraday movement of the price can predict the next day’s stock price direction, which may or may not happen.
But how can someone understand the market?
One may ask how helpful can today’s price action be?
Well, below, people can use Amibroker to scan for a stock catalyst.
What is a catalyst?
According to Guerilla stock trading, a stock catalyst is an engine that will drive your stock either up or down. (source)
They are the market movers that influence the direction of the stock price.
For example, banks provide liquidity to commercial buyers by trading the bid-ask spread. Both of them are moving towards the stock market.
They trade against each other, which causes the stock price to go up and down.
For example, when there is a large commercial seller above the high of the day, the market makers will try to move the price into the commercial seller. It is what banks do to provide liquidity to the stock market.
Observe how the stock price moves, from high to low and vice versa. It is actually just the spread between commercial buyers and sellers.
Both of them look for discounts when buying and selling.
Large candles on stock charts usually move in the opposite direction.
One may identify the move as an uptrend that may cause account losses in the future.
Traders should always remember that the market is a liquidity driven environment. The more sellers above the high, the stock price is probably going higher.
People may have noticed that even with bad news, the stock price is still going up?
It is probable that commercial sellers are present positioned above the highest price.
For Elliot wave fans, they can understand that the third wave is the strongest run because market makers are moving to the liquidity areas in the stock market.
Traders should stay away from the highs and trade the direction of the commercial traders instead.
Common ways to find a catalyst?
People can monitor the news to screen stock catalyst for example, an analyst upgrade or interest rates is lower than before. However, the information is usually outdated.
Considering the results, professional traders are selling the news because they know that price action is more reliable.
A person trading for quite some time would also notice these moments. If he just journals his trades, he will know.
However, selling the news is still not a guarantee that it will make him profits because timing is the key.
This is the trading challenge of many traders who are just starting out in trading.
So, what is the better method or system?
Well, it is better that the trader use price action and volume before he even considers watching the news.
Earnings Season – Can be a stock driver
According to Investing.com, earnings seasons are January, April, July and October. (source)
Because most investors rely on most analysis of earnings, positive earnings estimates are usually a powerful catalyst of stocks.
For example, cash will usually come to the stock market during the earnings season, causing the share price to rise.
Amibroker is a powerful tool that can help traders find stock catalysts. One can use it every day provided he has reliable data.
The code below will find stocks that did not exceed its open prices.
//filter open>=high Filter=Open>=High; AddColumn(Close,"Close"); AddColumn(Volume,"Volume");
A trader can use this stock catalyst screener at the end of the day. Then, he will be looking for a price action such as below.
Intraday is mostly available with the trader’s broker.
The stock prices stayed below the open price the whole day and then moved back up right before the close of the day and near the open.
One can see the strength of the stock or a possible presence of an upcoming catalyst. For example, there are many catalyst stocks in the market, such as new tech stocks and other growth stocks.
Or Wall Street is hyping a company, which may become a major catalyst in the short-term.
Professional traders use this technique or trading strategy that looks easy, but it is effective. They also need to know if there was enough volume. It can be one million minimum.
It is just common sense, and it is easy to use.
Most next day’s price action is a move up. One can observe it for two weeks and see what happens.
A trader just needs to find “a U” shape Intraday price action. It may look like a pin bar when someone is looking at the chart.
However, pin bars don’t always have the price action that professionals are looking for.
Day traders love these trading signals in the stock market. They know something will happen tomorrow without even watching the news.
This simple script will help a trader a lot.
Emerging Markets -Is it a catalyst?
Emerging markets are also good markets to find stock catalysts. For example, when emerging markets are in a growing phase, traders can buy an index or stocks because it is a positive catalyst.
However, if the growth is already weakening, it is an also a powerful driver to sell or short emerging markets.
According to Wall Street Journal, “Emerging Markets are high risk but also high reward.” (source)
A trader should use this stock catalyst screener and observe what happens for two to three weeks.
Well, it is important to do it for a period because computers can not recognize the shape easily.
One will be surprised at how effective it is. Of course, it does not work 100% of the time.
Multiple criteria for stock scanners are not really required.
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