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Filters

Filters are a further set of rules that filter out unwanted markets and stocks.

If you were trading the top 100 stocks in a particular exchange, then you may not even need to use filters, however to give you an idea, listed below are some of the sorts of filters you could use.

When back testing quite a large sample of data, one can then apply filters to see if the overall results of the back testing improve.

 

Liquidity Filter

Liquidity is the ability to buy and sell easily. This filter checks the average volume of the instrument being traded. Options traders, futures traders and traders trading stocks that aren’t blue chip stocks will need to consider the volume in relation to their own positions.

For example, if your system tells you to purchase 10000 shares and the average volume of the stock is only 5000 this will create a liquidity issue for you.

There is no real right or wrong answer because all markets are different; futures are very different to options which are very different to stocks.

 

Price Filter

The trading of penny stocks is a real business pursuit; however for a system trader who is looking for consistent results, stocks with too low a price can cause issues. Low priced stock movements can be likened to a speed boat compared to large blue chip stocks that move like an oil tanker. Added to that, in the lower priced stocks there is usually more volatility relative to the stock’s own price.

 

Volatility Filter

The volatility of a market is its range of movement is a particular time frame. The use of the indicator ATR (average true range), will average out the range over a selected period time such as 30 days. This would look like ATR (30).

Highly volatile stocks may be hard to trade due to the higher stop loss sizes and slippage to name two reasons, and low volatility stocks may lack any real ability to trend.

 

Relative Strength Filter

A simple but effective filter that selects stocks based on their relative strength within their sector or the market as a whole.

One can apply filters such as 52 week high, 52 week low to get the real movers.

Investors Business Daily (http://www.investors.com) offer many services that filter out stocks based on special criteria such as strength.

 

Move on to Step 5 - Module 1 > Risk Management

 

  

____Step_1____
Welcome
Binding Agreement
____Step_2____
Your Trading Business
□ Trading Styles
□ Objectives
□ Business Resources
□ Business Assets & Liabilities
____Step_3____
Market Basics
□ Stocks
□ Forex
□ Futures
□ Options
□ CFDs
Trading Basics
□ Reading Price Charts
□ Types of Markets
□ Types of Trading
□ Placing Orders
____Step_4____
Charting Basics
□ Pivot Points
□ Trend Points
□ Isolation Points
□ Real Bars
□ Summary & Test
□ Answers
Trading System Builder Tool Kit
□ Trading Rules
□ -1 Trend
□ _Moving Averages
□ _MACD
□ _Trend Lines & Channels
□ -2 Trigger
□ _Moving Averages
□ _MACD
□ _Stochastic
□ _RSI
□ _Bollinger Bands
□ _Fibonacci
□ _Support & Resistance
□ _Trend Lines
□ _Divergence
□ _Volume
□ _Price Bar Patterns
□ _Breakouts
□ _Which Triggers To Use
□ -3 Trade
□ -4 Terminate
□ _Initial Stop Loss
□ _Exit Strategy
□ -Filters
____Step_5____
Risk Management
Back Testing & Evaluation
Running The Business
Additional Tools & Resources
Resources