Here’s How to Be Ready the Next Time Stocks Pull Back

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Stocks just had one of their sharpest pullbacks of the year, creating opportunities for investors able to quickly discover opportunities.

The screenshot below shows TradeStation’s Scanner tool. It’s programmed to detect stocks trending upward before the crash that may offer potential entries. The results include prominent growth companies like Tesla (TSLA) and Amazon.com (AMZN), along with value stocks like Morgan Stanley (MS), L Brands (LB) and T Rowe Price (TROW).

Scanner showing results of scan highlighted in this article.

The scan uses two basic principles. First, it looks for symbols with positive intermediate-term momentum. (Scanner achieves this by isolating stocks above their 50-day moving averages.) Second, it looks for short-term pullbacks. Here’s how to program it:

  1. Click on the Apps button at the top left of TradeStation and open Scanner.
  2. Name the scan. (Something like “Pullback Scanner.”) Click Next.
  3. On the following tab, select All Stocks. (You could include just Nasdaq or NYSE issues as well.) Click Next.
  4. On the next tab, click <Select Criteria>, then Price → Last.
    1. In the Operator column to the right, select “>” (greater than).
    2. In the Field/Value to the right, Select Indicator → Mov Avg 1 Line.
    3. Click on the “+” to the Left to expand and change Length to 50.
    4. This will find all symbols whose last price was above the 50-day MA.
  5. On the next row, select Price → %Chg → %Chg(5 Day)
    1. In the Operator column to the right, select “<” (less than).
    2. In the Field/Value to the right, type “-3”.
    3. This will find all symbols down at least 3 percent in the last five sessions. (Short term pullback.)
Scanner showing settings described above.

Scanning for Pullbacks

The scan will likely return a large number of results, including many obscure and illiquid stocks. We can add two more criteria to eliminate those:

  • Capitalization → Market Capitalization (Mil) > 5000
    • This will find stocks with at least $5 billion of market cap.
  • Volume → VolAvg (10 day) > 1000000
    • This will find stocks averaging at least 1 million shares of volume per session over the last 10 days.

Scanner is highly flexible. You can include (or exclude) stocks in certain indexes. You can screen for companies with certain fundamentals like earnings growth or P/E ratios. Options traders can even isolate underliers with heavy option volumes. This is a relatively unique functionality because many stock scans focus only on fundamentals or only on technicals. But TradeStation lets you combine an indefinite number of criteria of your own choosing.

In conclusion, the market frequently provides opportunities to investors who can react to new circumstances. Hopefully this article helps you use TradeStation’s tools and functionality more effectively the next time a pullback occurs.

Amazon.com (AMZN), daily chart, showing pullback and 50-day moving average.
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