Evaluating the Daily Chart
Swing trade scanners are often used on the 4-hour or 1-hour timeframes. However, it is best practice to start with the daily chart to determine whether opportunities on lower time frames align with the overall market trend or are counter-trend.
Trend Identification: Begin by analyzing the daily chart to gain a broad perspective on market trends. Use simple moving averages or your preferred method to determine whether the market is in an uptrend, downtrend, or consolidation phase.
Structure and Key Levels: Draw trendlines to connect both upsloping and downsloping points, and mark significant support and resistance levels. These key points will help guide your decisions on where to enter or exit a trade.
Fundamental and Qualitative Factors: Assess any fundamental or qualitative factors that might impact sector performance. Consider elements such as upcoming economic data releases, the business cycle, liquidity cycle, and monetary policy, as these can influence broader market sentiment and price trends.
Scanning the 4-Hour Chart
Cycle Extremes: Use a scanner to view the DSS (slow stochastics %D) for all available sectors. This will help you quickly identify which sectors are most oversold (cycle low) and which are most overbought (cycle high). These signals become potential action items, prompting further analysis.
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Trend Identification: Determine the trend by applying simple moving averages or your chosen method to identify if the market is in an uptrend, downtrend, or consolidation phase. It is generally recommended to align with the current trend, although counter-trend may also be attractive under certain conditions. The most important thing is to know whether the trade is in line with the prevailing trend or is counter-trend.
Structure and Key Levels: Draw trendlines to connect both upsloping and downsloping points, and mark significant support and resistance levels. These key points will help guide your decisions on where to enter or exit a trade. It is likely that many of these levels will align with the daily timeframe, which is a good thing.
Refining Entries with the 1-Hour Chart
Cycle Extremes: For more precise entries, align the 1-hour chart with the 4-hour chart. Ideally, look for both timeframes to be at cycle extremes, whether oversold (cycle low) or overbought (cycle high).
To enhance the probability of predicting a market swing, seek confluence of multiple variables across different timeframes. Here is a quick checklist:
Trend alignment across various timeframes
Cycle extremes across various timeframes
Market structure connecting multiple timeframes
Horizontal support/resistance significant on multiple timeframes
Building A Scanner
Since I focus on the S&P and its related sectors, my scanner is very simple, primarily using manual filtering via the DSS (Slow Stochastics %D). You can enhance it by adding additional criteria, such as moving averages or other indicators. The larger your watchlist, the more filter criteria you should use. Most charting platforms offer scanners that are generally straightforward to use and can assist with this process.
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