How to find good swing trading stocks (article)? (ChartMill Tutorial Edition 2022)


In this article I will show you a couple of ways to find good swing trade setups using the stock screener ChartMill. To be clear, good setups are no guarantee that the trade will be profitable at all. No one has a crystal ball, including myself. But a list of quality setups that can serve as a basis will at least allow you to concentrate on the stocks that offer the best opportunities.

To this end, I use ChartMill, a stock screener that tracks nearly 23,000 stocks worldwide, both fundamentally and technically.

If you don't have any experience with ChartMill yet, I recommend that you take a look at the ChartMill Academy Video series, which will get you started quickly with this stock screener. Basic use of ChartMill is completely free! All you have to do is create a free account for which you only need a valid email address.

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Let's get started.

Checking the performance of the general market conditions and sectors/industries

Personally, I always start by checking what the general trend is in the financial markets. To do this, I first look at a number of US long-term index ETFs, specifically the SPY (S&P500), QQQ (Nasdaq), DIA (Dow Jones) and IWM (Russel 2000).

I have all four ETFs in one watchlist so I can easily call them up. I use the '2 charts' option to view both the daily and weekly chart side by side. This way I very quickly have an overall picture of the medium and long term trend. On the daily chart I have displayed the SMA10 and SMA20 (simple moving averages) by default, on the weekly chart on the right you can see the ChartMill Trend Indicator, this is a 30-week average line (green is bullish, red is bearish, gray is neutral). I use that 30-week average line because I am a big fan of the stage analysis method covered in Stan Weinstein's book, Secrets For Profiting in Bull and Bear Markets, where that 30-week average line plays an important role in determining the long-term trend.

Once I know how the general market is doing I check out the performance of the different sectors. To do so, click the sectors section in the main menu on the left. If you don't see this main menu, just click on these three horizontal bars in the upper left corner. The next screen offers shows an overview of the different sectors, groups and industries for the US,, Europe and Canada and you can choose between the GICS or NAICS classification. A big advantage of this stock screener is the combination of both fundamental and technical analysis and also on this sector page you can compare the different sectors and industries both technically and fundamentally.

If we compare the sectors purely from a price perspective it is striking that the energy sector has done very well over the last 6 months, in every column the sector is at the top (this article was written on 2022/05/09). So it depends a bit on what timeframe you are trading on. If you trade fairly actively and at short notice, then it is advisable to keep your eye on the performance of the last week or one month at the most. If you mainly want stocks which have been performing well for a longer period, then you should also look at the results at 3 and 6 months.

If you want to compare fundamental ratios between different sectors, you can click on the 'FA-view' button. However, bear in mind that specific financial ratios are sector-specific. So it is best to compare them between companies that are part of the same sector. How to do that will be covered later in this video.

Now that we know that the energy sector is one of the best performing sectors in terms of price, we can proceed with the actual stock screener.

Setting up the basic filters

On the stock screener page, you can see in the blue bar on the left that there are over 22,500 stocks available in our database. But that will soon change once we apply a number of filters. First of all we are going to limit the selection to only the energy sector. We do this by selecting the energy sector in the general menu under the 'sector' tab. With just this one filter, we've reduced the total number of stocks to about 650 shares.

By default I have the view set to 'charts', if you prefer to see the results in table view at this stage you can do so quite easily by opening the dropdown menu in the blue bar next to view and selecting the option 'overview table'.

One of the advantages of this overview table is that you can compare all the stocks from the same sector based on their relative strength through the CRS (ChartMill Relative Strength) column. This figure is calculated by looking at the performance of each stock over the past year, but more weight is given to the most recent performance of the last quarter. The higher the value, the stronger the stock is compared to its peers in the same sector.

More than 600 shares is still far too many to scan manually, moreover we want to ensure that the shares we trade are easily tradable, this is also called the liquidity of a stock. For that purpose we use a volume filter that you will also find in the general section. Select the option 'Average Volume' and choose the desired option. I use a minimum average daily volume of 300,000 over the last 50 trading days. This reduces the number of shares that still qualify to almost half.

The 'price filter' can also be useful, for example if you want to exclude shares that are priced too high. Using the predefined filters you can specify that you only want to keep shares of which the price is less than €20.

Via the 'custom' menu you can actually set any price you want. I will give an example where I select all the stocks that quote at most €$50, a number that is not available in the predefined filters. I first delete the previously set price filter.

Go to the custom tab and in the top field select 'property' and select 'current price'. In the middle field select 'less than or equal to' and for the bottom field first select 'constant' and then enter the value 50. Press 'enter' and then 'ad filter'. You've just created your own custom filter and it should look something like this:

So you only get shares now with a maximum price of €50. In the same way you can also set a minimum price for each share.

Finally, when searching for buy candidates, we only want to withhold the shares of which the trend is positive. There are several ways to do so in ChartMill. A well-known and widely used method is to select only the stocks that are trading above their 200-daily simple moving average. Click on the "Performance" menu and use the "price vs SMA" section to select the "Price above SMA200" option. Again, a number of stocks will be dropped from the final selection.

With these basic filters we have already excluded quite a few stocks. Before we can go any further it is important to know what type of strategy you want to use. The two most common ways to swing trade are breakouts and retracements. Which of the two you choose is a purely personal choice. If you have little experience it's recommended to test out both strategies with a paper trading account and find out which strategy you feel most comfortable with. There is no better or worse way so use the strategy which best suits your preference.

Let's start by screening for breakouts. The basic filters are already set so we'll move on to the more specific filters.

Configure specific filters for breakout setups

A very important aspect in swing trading is momentum. This means that there is suddenly (much) more interest in a certain stock. When a stock suddenly attracts more people, we speak of rising momentum. To measure this momentum, we examine the volume. We look for stocks of which the volume has risen strongly compared to the day before, which is a proof that the stock is very popular among investors or traders. In ChartMill, we track down those stocks via the 'Indicators' menu where you have several options under the 'Volume Increase' section. You can simply stipulate that the volume of the last trading day should be higher than yesterday but even better is to look for the outliers. For the breakout strategy I therefore always start with the choice 'Volume 100% more than previous volume'. The number of remaining shares will of course decrease considerably as a result of this. So if you notice that you hardly have any shares left, you can set this filter a bit less strict by going for 'Volume 50% more than previous volume' for instance.

For trading breakouts we look for shares which have broken out above an important price level. Several options are possible, you can find them all through the section 'Performance' and then 'Signal'. Click on the inverted triangle and in the drop down menu you now have several choices. In this article I'm using the option 'New 52 Week High'. Thus, by doing this, we will only be shown the stocks whose most recent price reached a new highest annual price intraday. Again, you have the option to set the filter less strict and, for example, to choose 'New 10 Day High' or 'New 20 Day High'.

How to add specific indicators and overlays to your chart is explained in this video

Define specific filters for retracement setups

For retracement setups, we are looking for stocks in a rising trend whose price has fallen back slightly and where we want to buy the stock on the assumption that the rising trend will resume. The easiest way to detect those short declines in a rising trend is to look at the price of the stock in relation to some commonly used averages.

First, I'll briefly explain why I use that method. These are some stocks in a rising long-term trend.

The lines below them are the SMA10, SMA20 and SMA50. Typical for price retracing is that stocks that temporarily decline find support around these averages. On the charts you can clearly see that the price has repeatedly rebounded from these levels after which the long-term trend continued. We will therefore make use of this by looking for shares which are close to one of these moving averages.

To do so, go to the 'Performance' menu and under the 'Price vs SMA' tab you can set different price filters based on the price vs SMA.

One possibility, for example, is to choose the option 'Price crosses SMA20 from below'. You will then get all shares of which the most recent closing price has crossed the SMA20 upwards (and where the price may thus resume its upward trend). You can also test this with the SMA10 for example.

Another possibility is to use the filter 'price in 2% range of SMA20' and check the results.

Or you can specify for example that the price of the stock lies between the SMA20 and the SMA50. For this, you need to combine two filters. First choose 'Price below SMA20' by which you define that the price is lower than the SMA20. Next you choose 'Price above SMA50' which means that the price is higher than the SMA50. In this way you have defined that the current price is between the SMA20 and SMA50.

For retracements, I always choose an additional volume and price filter. For the volume filter I again go to the 'Indicators' section and under 'Volume Increase' choose the option 'Volume more than previous volume'. To set the price filter go back to the 'Performance' menu and use the 'Todays Performance' filter which I set to at least '0%'. This ensures that all stocks are excluded whose price has dropped the last trading day.

As you can see, the possibilities are very diverse. Be sure to check out the video version of this article where you can actually see how I set up all these filters.

A tip to use the scanner as efficiently as possible is to either start very wide and depending on the number of candidates left, set the filters more strictly or you can also work the other way around and start with strict filters. If you then notice that there are too few setups left, you can set a number of filters to be less strict. In this way, you will have a final selection of breakout or retracement setups to proceed with. This can be purely price technical but also a more fundamental comparison of these companies within the same sector is certainly a possibility.

To get a quick overview of a number of important fundamental ratios you can change the view via the blue bar to 'FA-table' where a number of frequently used ratios are listed next to each other. You can sort each column from high to low or vice versa. Personally, I usually start by sorting the ChartMill FA rating from high to low.

If you'd like to consult the detailed information of a company, you can click on the first icon in the 'action' column on the far right, which will take you to the profile page of the stock.

From there, you can consult all kinds of additional information such as an extensive technical and fundamental report, analyst ratings, the outlook for the company, the company figures, who the main shareholders are and what insider transactions have recently occurred and finally the news that was released about this company.

Keep in mind that even the best setups can fail and that losing trades will simply be part of any trading strategy. How you deal with losing trades is to a great extent decisive for your success on the stock market. This series of articles about money and risk management, available in our documentation section, can help you with that.

Finally, “Preparation Is Half The Battle” and a quality stock screener like chartmill can certainly contribute to that!

The ChartMill Team