How to find the strongest Stocks with low-risk entries?

Apr 20, 2024

As a swing trader, especially in a tough market environment, your entry point becomes the most important part of your trading.

Breakouts don’t work like how they used to anymore.

Squats are aplenty.

So, what do you do?

Look for LOW-RISK PULLBACKS.

In this article, I will show you how to find low-risk strong stocks pulling back at their key MAs.

PS: scanner at the end of the article

But why?

Because strong stocks pull back and bounce off their 50-DMA.

Stronger stocks pull back and bounce off their 20-DMA (or 21-DEMA).

And, the strongest stocks pull back and bounce off their 10-DMA (or 5-DMA).

This is a repeating market structure that will keep repeating as long as the free markets exist. No kidding.

But just pulling back is not enough.

What more do we want?

Relative Strength.

We need to trade the pullback on only the strongest stocks.

Well, there is no scanner to scan for high relative strength in chartink.

But we can get around it by making sure the following:

A prior uptrend:
The stock has had a 20% return in 20 days, or
50% return in 50 days, or
100% return in 100 days.
Stock is not down more than 25% from its 52-week high or 50-day high.

Currently, this scan will have around ~150 stocks.

Or,

Just sort your liquid universe according to the Mswing score. The Top 100 (to 200) will be the strongest stocks in the entire universe (or when you scan for the pullback scan, use a filter of Mswing above 0.5/1).

Good for weekend scanning.

But if you want to trim it down further.

Then add in tightness criteria.

There are many ways to do this. One can use filters using ATR, Bollinger bands, etc.

For now, the scanner I provide does not have that filter to ensure you have an adequate number of stocks to screen for your watchlist.

Finally, when you take an entry. Make sure that stocks have these 2 things:

MARS/Mswing above 0.
RS rating above 80 (ie. the Stock is at least within the top 200 stocks in the RS list).
Both of these criteria will ensure that these are the outperforming stocks.
Without an ounce of a doubt.

Example: Voltas: MARS positive and RS 95

Not JTL industries: MARS negative and RS rating 32.

Thank you for reading The Technical Take. Please share it if you find this valuable.

That’s all for today mate.

A rigid trading system can be as dangerous as NOT having a system.

Trading is not just about having a system but a system flexible enough for all market environments.

Then comes the part of actually trusting and following the system.

This is the toughest part—the discipline.

It would help if you had the support of like-minded fellow traders for this.

o call you out when you go off the disciplined route.

My community at Homma Private Access (HPA) does that for me.

It will also provide you the shortest way towards being consistently profitable in the shortest amount of time.

There are 2 ways I can help you:

Join the Sakatas Homma TA masterclass for beginners:
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Homma Private Access membership:
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1. Daily Market Breadth, Momentum, Sector Rotation, and Relative Strength Update.
2. Access to all my scanners including the BBB (buy before breakouts) scanner.
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