Quite simply, I have figured out that there are only three types of stocks. It’s not Earth-shattering, and when I tell you what the types are, you might say—Duh!

Even though it is a simple concept, the trading strategies will be different for each type. If you are going to use a trading strategy that is most effective for one of the types, then it is essential to identify what type of stock it is.

Drum roll please.

The three types of stocks are……Trending up, Trending down, and sideways. Yep. But as simple as it is, how do we find stocks that belong in these three categories?

The answer is through the use of screeners. You would think that every screener could do this basic analysis, but not so. And controlling the time range for the analysis is very important since stocks work their way from one type to the other.

I couldn’t figure out how to screen for the different types with the Yahoo Finance screener. Maybe there is a way, but in any case, I resorted to the thinkorswim platform.

To find positive trending stocks, set up a study in the thinkorswim platform in the following way:

I set the price change to 10 percent, so that the scanner looks for stocks that have exceeded 10 percent gain in price 125 bars ago. The bars term is a reserved word, which means, in this case, 125 trading days, which is about when the bottom of the Corona Crash happened for the time of this blog. The D on the right is what defines what the bar is. You can set it to months or as little as 1 minute.

Unfortunately, there are only 23 months of historical data that the study can use. The study feature in thinkorswim is very powerful, with many bells and whistles. You can customize it by adding more indicators, adjusting selection menus, or using the scripting language that comes with the tool.

To find Negative trending stocks, set up a study in the thinkorswim platform in the following way:

To find the sideways stocks set the study up like this:

The strategies for each category, in most cases, are different. The screener presented may need more refinement to be effective with a particular trading strategy. For example, if you are interested in investing in oscillator stocks, ones that are sideway stocks but oscillate from low to high often, then the screener would have to be modified to detect the number of crossings through a range.

For trend trading, you might add average indicators to the screener.

In any case, the screener mentioned is a start to finding which stocks belong to the trending up, down, and sideways categories. It is up to the reader to narrow down the list of stocks it provides to find a stock that meets the trading strategy.

I highly recommend TD Ameritrade and would like to refer you to them. To find out why I think they are so good click on the Ameritrade referral link.

Also, if you’re interested in learning about the differences and similarities in strategies of the best of the best traders, investors, and hedge fund managers check out my book Stock Market Masters.

See you in the next blog,

Dr. Paul Keller

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