Gorilla Trades’ Stock Pick Screening Employs An Advanced Technical Stock Screening Process

Technical Stock ScreeningAfter the market closes each day, GorillaTrades uses proprietary software stock picking program to scan all of the stocks in all three major markets, while eliminating all stocks under $5. Next, this complex software program scans through over 6000 stocks looking for only those stocks that match each and every one of the 14 technical parameters of the Gorilla’s proprietary stock picking formula. This formula is known only by the Gorilla. If a stock does not match all of this criteria, it does not make the Gorilla’s list of top stock picks. While most stocks that appear on the Gorilla’s list are well known companies, the Gorilla does not look at any fundamental aspect of the companies during the technical stock screening. If a stock that the Gorilla personally owns makes the list it is disclosed with an asterisk next to the selection. This has absolutely no bearing on whether a stock makes the list of picks or not. Each day the number of GorillaPicks will vary depending on the overall stock market conditions. On some days, this list may not contain a single stock pick and on other days, it many contain as many as three or four stock recommendations.

Here are some of the ingredients that are part of the Gorilla’s technical stock screening secret formula:

MACD- This is a two-component indicator based on two exponential moving price averages. Because of the early signals which can be derived from this indicator, it is regarded by many analysts as helpful in the trading of stock options. The first component of the MACD is a line which represents the difference between two moving averages, each computed for a different period of time. This first component is called the Price Phase Line. The second component, which is called the Signal Line, is an exponential average of the first component. The two lines are charted together on the same time scale.

As a general rule, it is considered bullish when the Price Phase Line is rising and is above the Signal Line. Conversely, it is bearish when the Price Phase Line is falling and is below the Signal Line. Buy and sell signals are generated by the crossing of the two lines. In general, a buy signal occurs when the Price Phase Line crosses from below to above the Signal Line. A sell signal is indicated when the Price Phase Line crosses from above to below the Signal Line.

Because of its smoothed nature, this indicator can be helpful in highly volatile markets such as the options market. Although generally less effective during narrow, trendless markets, it provides good signals during widely swinging trading ranges and at the conclusion of strong trends. MACD is especially valuable for its ability to signal a turnaround following a sharp decline. In this situation, divergences are particularly significant and often predate important market bottoms. Divergences pertain to trends and occur when the trend of price action and the trend of an indicator are in opposite directions. In addition to trend breaks, divergences, and Signal Line crossings, it is important to watch for overbought and oversold levels. When the MACD rises above a certain level, the stock is in an overbought region and a reversal is likely. The same is true in the oversold direction.

Volume- Clearly, volume is the force that drives the market. It is volume that indicates the meeting of supply and demand at a specific transfer price. Volume and the change in volume or the increase or decrease over time is often a precursor to price movement. It is said that volume precedes price. Look for spikes in volume (high volumes) and where the spikes are relative to the price of the stock. High volume when the stock is near a lower Trading Band indicates a possible move upward. High volume when the stock is near an upper Trading Band indicates a possible drop.

Moving Average- This is perhaps the oldest and most widely used statistical method applied to stock price data. Primarily, it is used to smooth out short-term fluctuations and depict the underlying trend; the longer the time period used in the calculation, the longer the term of the trend depicted by the average. Mathematically, the Moving Average is a simple arithmetic mean, giving equal weight to all data values. Although many different time periods are commonly used, 21 days is considered appropriate for short-term trading and 50 days for intermediate-term trading. For long-term trend analysis, most analysts prefer a 200-day average. Our indicator is a combination of all three periods. The Moving Average tends to offer support and resistance in an up-trending market and resistance in a down-trending market. Historically, support and resistance will prevail until a breakout occurs. A price which breaks through a Moving Average line can be a signal that a trend reversal is taking place.

Money Flow- This indicator measures the flow of money into and out of a stock. Money flow is similar to the Accumulation/Distribution indicator in that it attempts to measure the balance of supply and demand. Money Flow is computed by multiplying total trading dollars by a factor called the flow factor. Total dollars is estimated by multiplying average price for the period’s activity by the total volume for the period. The average price is computed as the average of the high, the low, and the close. The factor is determined from the relation of the closing price to the intraday high and low. If the closing price is midway between the high and the low, then money flow pressure is balanced and the factor is zero. If the day’s closing price is equal to the day’s highest price, then the flow factor is positive. If the day’s closing price is equal to the intraday low, then the flow factor is negative, which is interpreted to mean a total outflow of dollars from the ticker.

OBV- This is a widely used indicator that shows accumulation and distribution action. The indicator is computed as a continuous summation of daily volume. On days when prices advance, the volume for that day is added to the running total. On days when prices decline, the volume for that day is subtracted from the running total. On-Balance Volume is different from Volume Accumulation Percentage because there is no weighting. OBV assumes that if the price today is higher than the price yesterday, all of today’s volume is accumulation. If the price today is lower than the price yesterday, all of the volume is distribution.

Signals are determined from divergences and non-conformations. Divergences occur when the trend of price action and the trend of the indicator are in opposite directions. A non-conformation occurs when price action achieves a new high or new low that is not matched by an equivalent high or low by the indicator. A break in a well-established trend of the indicator line itself is often followed by a break in prices in the same direction. Divergences between price trends and OBV trends often signal a move in the direction of the OBV trend. Non-conformations between new high or low prices and the OBV line can signal a reversal of the current price trend.

This is sometimes used in combination with Accumulation/Distribution. Non-conformation signals generated by these indicators are strongly enhanced when the two agree. If a non-conformation is indicated on both the Acm/Disline and the OBV line, the resulting signals are stronger than if evaluated separately.

Volume/Price Trend- This indicator is a short-term indicator best used for signal confirmation. The value of this indicator is that both price and volume are combined into a single indicator. Volume/Price Trend is computed as an exponentially smoothed average of the ratio of percentage price change and the percentage of volume above and below average volume. This indicator is very sensitive to changes in price action. Periods of average volume will precede periods of higher volume when price action is already taking place. The Volume/Price Trend indicator attempts to anticipate price action by measuring price changes during periods of average, or normal, volume. Because the Volume/Price Trend indicator gives short-term, quick confirmation, it is best used when trading equity options.

Look for divergences and non-conformations with price action. Divergences occur when the trend of price action and the trend of the indicator are in opposite directions. A non-conformation occurs when price action achieves a new high or new low that is not matched by an equivalent high or low by the indicator.

Volatility- This indicator is a measure of the fluctuation in price over a specified period of time. The indicator is expressed as the annual percentage change in price which provides a relative basis for examining volatility. This volatility indicator is similar to the volatility used in the Black-Scholes pricing model. The higher the number, the more volatile is the security or the market. Volatility readings help give an indication as to when the security will stage an advance or decline. An increase in volatility, especially after a period of low volatility readings, typically precedes a large move in the security. The direction of the security’s movement is usually opposite its current trend. Prolonged high volatility readings often signal a consolidation period.

Volume Oscillator- An oscillator is the difference, in percentage terms, between two different exponentially smoothed averages. The Volume Oscillator here is a percentage difference between short-term volume and long-term volume. As volume tends to precede price, this indicator shows the relationship between short-term volume and long-term volume. The center line on the Volume Oscillator chart is zero. A positive value for the indicator indicates short-term volume greater than long-term volume. A negative value indicates the reverse. What you should look for when evaluating the Volume Oscillator are non-conformations with price activity.

SK-SD Stochastics- This indicator involves two components. The SK component is typically a 3-day moving average of the stochastic ratio SK is again averaged over the same number of days to obtain a double smoothed average ratio called SD.

The SK component is always the upper line on up movements and the lower line on down movements. The SD component is the lower line on up movements and the upper line on down movements. The simplest interpretation of this version of the Stochastic is that price trends will reverse when the value of SK diverges from price. For timing following a non-confirmation, buy signals are generated when the SK line moves above the SD, and sell signals occur when the SK moves below the SD. These signals are enhanced if the second average, the SD, has already made the turn in the direction of the signal.

Relative Strength Index- This is a measure of the relative strength of the average upward price movement against the average downward price movement. The index signals overbought and underbought conditions.

Look for divergences (trends do not agree) between the RSI and price action. Also, look for failure swings: either a top failure swing or a bottom failure swing.

Accumulation/Distribution- This is a single value indicator that weighs buyer dominated volume (accumulation) against seller dominated volume (distribution). It is computed as a running total of weighted volume. A weighting factor derived from price action is applied to the day’s volume and the result is added to the accumulated total.

The volume weighting factor is determined from the closing price in relationship to the intraday high and intraday low. If the closing price is midway between the high and the low, then accumulation and distribution pressures are balanced, and the factor is zero. If the closing price is equal to the day’s highest price, then the accumulation factor is positive. If the day’s closing price is equal to the intraday low, then the accumulation factor is negative, which indicates distribution.

Velocity- Another factor in our technical stock screening, is a momentum indicator which measures the rate of change of price using least squares methodology. The indicator is calculated as the slope of the line that most closely approximates the data over the period of time specified. Velocity is similar to the Price Phase indicator and is used in the same way to determine short-term changes in price momentum. Velocity cycles above and below the zero line as momentum shifts back and forth between negative and positive. When the indicator is above the zero line and rising, momentum is positive and is increasing. The opposite is true when the indicator is below zero and is falling.