Identifying stocks, options, or futures to trade can be a daunting task. Earnings analysis, sentiment indicators, and charting techniques may help narrow down your choices.
Deciding what to trade can be one of the most challenging aspects of trading. How do you find stocks with the greatest momentum? Should you look for price reversals? How do different assets move relative to each other? Here are some tools you could use to narrow down your choices.
Earnings season is a big one—active traders live for it. That’s when stock prices can make big moves up or down. It can be a time of potential opportunity, but also a time of risk. You know when earnings will be released, but what you don’t know is what those earnings numbers will be. And that means you’ll have to prepare for the uncertainty. Here’s how you could find earnings candidates.
Fire up the thinkorswim® platform from TD Ameritrade (live account). See figure 1.
In the Fit All view, you’ll see the:
Knowing how vol moved around past earnings data doesn’t mean it’ll do the same thing when future earnings are released, but you may be more informed about the direction and magnitude of the price move.
Some traders consider overly bullish and bearish sentiment as indicators for potential reversals. It makes sense. You wouldn’t want to go long at the end of an uptrend or short at the end of a downtrend. The Sentiment Zone Oscillator (SZO) indicator, available on the thinkorswim platform, could help you identify overly bullish (overbought) or bearish (oversold) conditions (see figure 2).
When trading futures, instead of looking at a chart of one contract in isolation, it may be helpful to compare it to a chart of another contract. For example, you may want to look at price movement of the broader indices, or at how crude oil (/CL) contracts are trading relative to the S&P futures (/ES). On the thinkorswim platform, you can choose to show price as a percentage, which helps make an apples-to-apples comparison of price movement between two contracts. You’ll need to enable this in the chart settings dialog box (see figure 3).
After making your selections—and it’s a good idea to make the colors of each plot different—you should see the charts displayed together on a percentage basis. This helps identify which contract is stronger or weaker relative to the other. Analyzing such relationships could be useful in making trading decisions.
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