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Small Caps, Stock Scanners And Time Frames

October 22, 2024

Small Caps, Stock Scanners And Time Frames

Trading Strategies with Bob Iaccino

*Bob Iaccino, Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Thursday from 11am ET, as our risk management educator. With 30 years' experience working as an active investor in equities, commodities, futures and FX there are few better to talk on the subject of risk management.

Bob has developed a method for breaking down his key fundamentals of risk management, in a way that he thinks retail traders can understand and use to get actionable insights to bring into their own trading. Below are some excerpts of Bob’s thoughts from a recent live session.

Unlocking the Power of Stock Scanners in Your Small Cap Trading Strategy

When it comes to trading, having the right tools at your disposal can make all the difference. Today, I want to dive into one of my favourite tools: stock scanners. If you’re aiming to enhance your trading experience and protect your investments, knowing how to leverage stock scanners is crucial. Let’s break down how to get the most out of them.

What Are Stock Scanners?

Stock scanners are powerful tools that help traders quickly filter through thousands of stocks to find those that meet specific criteria. They can be customized with filters based on price, market cap, volume, and technical indicators like moving averages. By setting up a scanner, you save yourself the time and effort it would take to manually search for these opportunities. The key is in knowing what to look for and how to interpret the results.

The Small Cap Screener Strategy

For those of you who favor small-cap stocks, I’ve tailored a screener that looks for certain key metrics to identify high-potential opportunities. Here are some filters I recommend:

  1. Price-to-Earnings Ratio Below 30: I look for stocks with a P/E ratio below 30 to ensure they have room for growth without being overvalued.
  2. Price-to-Sales Ratio Below 3: This indicates you’re not overpaying for each dollar of revenue generated.
  3. Five-Year Earnings Growth Above 5%: Consistent growth over five years is a good sign of stability.
  4. Return on Assets Above 5%: This shows the company is efficient with its assets, a crucial factor for long-term profitability.
  5. Debt-to-Equity Ratio Below 1: A manageable debt load is important, as excessive debt can strain a company’s resources.
  6. Current Ratio Above 1: This ensures the company can meet its short-term obligations.
  7. Net Profit Margin Above 10%: A solid profit margin indicates efficient operations and strong cash flow potential.

Using Multiple Time Frames

One of my go-to methods is to look at multiple time frames. For example, while the daily chart might indicate a strong upward trend, the hourly chart could reveal short-term pullbacks that present buying opportunities. If I’m looking for a long trade, I might start with the daily chart to identify an overall trend, then drill down to the 30-minute or 15-minute chart for a precise entry point.

Practical Example: Filtering and Charting

In a recent session, I used a small-cap filter and identified stocks like American Coastal Insurance Corporation (ACIC), Magic Software Enterprises (MGIC), and Steelcase Incorporated (SCS). Starting with the daily chart, I look for patterns and trends that could indicate potential trades. For example, ACIC was approaching a death cross, a bearish signal, so I would lean towards short trades. In contrast, MGIC was above its 200-day moving average, making it a candidate for a long trade.

The Role of Market Sentiment

While stock scanners provide quantitative data, it’s essential to stay updated on the latest geopolitical events and market sentiment. External factors like oil prices or political unrest can drastically influence market trends. Always keep an eye on the bigger picture, especially in volatile markets.

Final Thoughts

Stock scanners are invaluable for filtering out the noise and finding stocks that fit your trading style. Remember, it’s not just about the metrics but how they fit within the broader market context. A scanner is a tool to get you started, but your intuition and analysis will take you the rest of the way. With the right strategy, stock scanners can be a powerful ally in your trading journey.

Disclaimer

Live Sessions (hereafter referred to as the “Content”) are produced by TradeZero. The Content may include the views and opinions of TradeZero and a third-party participant, Bob Iaccino. Bob Iaccino is compensated by TradeZero for participating in the Content. Mr. Iaccino’s trading experiences and accomplishments are unique, and your trading results may vary substantially from his. TradeZero is not responsible for and neither affirms nor endorses any of Mr. Iaccino’s views or opinions expressed in the Content. TradeZero makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security.

Trading securities can involve high risk and potential loss of funds. Furthermore, trading on margin is for experienced investors and traders only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. Options trading is not suitable for all investors as it can involve risk that may expose investors to significant losses. Please read the Characteristics and Risk of Standardized Options, also known as the options disclosure document (ODD) at https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document before deciding to engage in options trading.

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