Best short term filters to use in Trade-Ideas

What are the best short term filters to use in Trade-Ideas when you are setting up Alert Windows? After over 1000 lives trades in the last year alone in my automated trading strategies, I’ve nailed now a few core filters that are essential for all of my robots. These are the filters I use for my short term day trades.

template sample of my filters
Sample of my template filters

The most important filters to use when looking a great trade setup are Volume filters, Float filter, Dollar Volume filter, Gap and/or Change from the close Filters. The right combination of these filters will get you on track to find the right stocks in play each and every day.

Let’s break down each of those filters and why I find that they are critical to the success of my automated trading strategies. For those who are not familiar, I use Trade-Ideas to automate my trading. Since I don’t actually trade the stock market by hand, it’s important that I have my robots pick the correct stocks that have the highest probability of winning in my favour.

The Volume Filters

The first and move important filters I use are the Volume filters. Trade-Ideas offer a variety of different volume filters. The ones you will see in all my strategies are:

  • Volume Today (total Shares)
  • Relative Volume (%)
  • Average Daily Volume (3 months)
  • 5 Minute Volume (%)

What makes these filters so important?

I’m looking for stocks that have volume today. The filter (Volume Today) will also include the shares traded in the pre-market. I find anything that has over 120,000 – 300,000 shares already traded in the day are almost always going to be good stocks to trade. I’m also looking for stocks that have at least 500,000 daily average volume. This allows me to be able to get in and out of trades quickly. I also like to look at the 5-minute volume to make sure that there are either buyers or sellers stepping into the market at roughly the same time as me.

The Float filter

The float filter is certainly the second most important filter I use. The way how a low float stock trades versus how a mega-cap trades is completely different. Don’t believe me? Pull up a chart for ticker $BPTH and then pull up a chart of $BAC. BPTH has a float of around 2.5m shares and BAC has around 9.5B shares. The way these two stocks trade is completely different. Study the price action between these two and you will see that there is a big difference and this can mean a lot when day trading.

What makes the float filters so important?

Knowing what type of float you trade best in is vital if you wish to succeed as a day trader. The same for me in my automated trading strategies. My robots perform best when I have at least 20m share float. Some of the strategies I will cap the upside of the float as well.

Another important thing to know is that sometimes low float stocks might be hard to borrow if you are a short seller. Getting stuck in a squeeze could really hurt your trade. It can also be highly manipulated, and if that particular stock is moving excessively crazy, could also be temporarily halted by the exchange.

If this concept is new to you, I would recommend you take a good look at your trading journal and look at the stocks that you trade and compare the float. You might find some places you can improve in your personal trading.

The Dollar Volume filter

The official definition of this filter is as followed:

These filter stocks based on the dollar volume per day that the stocks trade.  Dollar volume is the current price of the stock (in dollars per share) times the average volume of the stock (in shares per day).  The result is the total number of dollars per day that people spend on the stock.

What I’m looking for here is sort of a combination of the 2 above mentioned filters. I want to make sure that a) There is volume to support my bias on a position one of my robots will take, and b) The volume vs the price of the stock is high enough to validate the move.

What do I mean by that?

Say stock ABC is trading at $22 and it’s now 10:30 AM and the stock has traded 1,610,000 shares. The total Dollar Volume on ABC is $35,420,000.

Now let’s say stock XYZ is trading at $150 and it’s 11:00 AM and only 127,000 shares have been traded. The total Dollar Volume on XYZ is $19,050,000.

I usually look for $20,000,000 or greater. In this case, stock ABC has been much more active than that of stock XYZ. While both stocks could fit the volume and float criteria, stock ABC is much more active and I would rather be in that trade than stock XYZ.

Gap and Change from the Close filters

I use a combination of these 2 to filters to find the stocks that are moving the most today. Most day traders are looking for stocks that are gapping. If more people are looking at the same stock, the more people will likely be trading it. If there are more traders, then the stock will be more liquid and it will be easy to get in and get out of trades.

How to use the Gap and Change from the close filters

The gap number will not change throughout the day. However, the change from the close will. There is also another filter called Change from the Open that you can also use in combination with the other 2 filters. If I’m playing a stock bullish, I usually want the change from the close and or open, to be above the gap. Typically I like a 1-12% gap up range.

If I were playing a bearish strategy I want the change from the close and or open, to be below the gap. However, I don’t want the stock to be gapping too far. I like around 1 – 8%. Stocks that get below 10% on the day get into SSR (or short sale restriction) and you can only short on an uptick. This can cap the downside potential on some types of stocks.

Another thing to think about when a stock is gapping down big time is that value investors might think the price of the stock is cheap and they want to start buying the stock at a discount. Again, this could limit the downside potential of a stocks bearish move. For these 2 reasons, I will cap my bearish automated trading strategies to avoid stocks that are gapping down heavily.

Start using these filters today

After optimizing hundreds of different strategies, and back-testing, forward testing, I can say that these core filters have lead to the success of my automated trading. If you are already using Trade-Ideas, great, simply look to implement these filters into your Alert Windows.

If you never heard of Trade-Ideas until this article then make your way here to learn what Trade-Ideas is, and how you can use it to improve your overall trading.

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