Use this screening method to stay on top of hot stocks, know when they are setting up, and have your orders placed for when they explode. This is how I scan for cup and handle and triangle (contraction) patterns.
The Cup and Handle is a great trading pattern. It’s easy to spot, scan for, and we have strict criteria we can look for to find high-quality trades. See the Cup and Handle Swing Trading Strategy article and video for more on how to trade that pattern.
Scanning or screening is the time-consuming part of swing trading. Placing a trade takes only seconds. Scanning can take 20 to 60 minutes depending on how many stocks there are on the list. Each week, assuming conditions are favorable for trading, I publish a Swing Trading Stock Watchlist.
Scanning reduces the number of stocks down a manageable number by only showing me the stocks that meet certain parameters (discussed below).
To learn more about scanning and finding explosive trades, and how to trade them, check out my Complete Method Stock Swing Trading Course.
The Stock Scanning Process
This is what a typical evening scanning looks like.
- I usually scan in the evening, after the stock market has closed. This works for my schedule; if you need to do it at another time, that’s ok too. I typically run a scan once a week, but it could be done every couple of days, or a few times a month. It depends on how much time you have.
- To start, I open up my scanners. I usually use StockRover, but you could also use ChartMill “trade ideas”. I save all the scanning criteria in my account so they’re ready to go. I don’t want to have to recreate the scan each time I log in. Both these scanners are free and have additional functionality with a paid subscription.
- If I have time, I go through the whole list the scanner produces. This could be anywhere between 50 and 300 stocks. If I’m limited on time, I sort the list by strongest performance over the last 6 months, then go through the strongest stocks in the time that I have.
- I then flip through the charts of the stocks on the list. I write down stocks that appear, at a glance, to fit the strategy parameters or will soon. This is a quick process, meaning I only spend a few seconds or less looking at each stock/chart.
- Then, I do a more thorough analysis of the stocks I’ve written down. I pull up a full-size chart (I use TradingView), consider the reward:risk, whether the trend is strong, and how well it meets the strategy parameters. I will also make sure earnings aren’t coming out within a few days.
- Once I have assessed the stocks, many will get crossed off the list. I may be left with a few. I then compare them to each other, and also the ideal text-book type examples (prior trades that worked well). Are these good candidates currently? Or are better trade setups likely to occur soon? If it’s a good setup, I place my entry order (if it’s ready to pop). If it is mediocre compared to prior trades, I leave it alone.
If it’s almost ready to pop, I keep it on a notepad in front of me and also add the stock to my chart windows that are always open on my computer. When it fully sets up, I place my order.
Stock Scanning Video on Finding Cup and Handle and Continuation Patterns
This video shows how to use the scanners and the process for selecting trades.
Basic StockRover Scan for Cup and Handles or Continuation Patterns
If we run a scan for stocks in strong uptrends, we can then look through that list for cup and handle and triangle/contraction patterns.
You can adjust these criteria, but understand what they’re doing and why they are there.
This scan is from February 2023. The point of the scan is to find stocks that are stronger than average, or stronger than S&P 500 (which is our average).
The S&P 500 is about 10% below its 52-week high. So the scanner only shows us stocks that are within at least 30% (70) of their highs. I give this wiggle room because many stocks are more volatile than the S&P 500. If the S&P 500 was right near its high, I would look for stocks within 20% of their high (80).
The S&P 500 is also about 4% above its 50-day and 200-day moving averages (MA). Therefore, I want stocks that are at least near these moving averages or above. 100 means the stock is at its MA. >90 means the stock can’t be more than 10% below the MA.
The S&P 500 is 18% above its 52-week low. For this criterion I want to see stocks that are stronger…at least 50% off their low. As the S&P 500 moves up, so does this metric. If the S&P 500 is 30% off its low, I want stocks that are 60%+ off their low (160 on StockRover as 100 represents the low price).
See how that works? I’m always looking for stocks at least as strong as the S&P 500 or a bit stronger.
The return versus industry looks for stocks that are stronger than the average stock in their industry. Why see 50 stocks from the same industry when we can narrow it down with a metric like this and see only the top 10 or so.
I have also added in requirements for how well the stock has performed over the last 3 and 6 months.
Each week on my stock watchlist you’ll see the criteria I used for scanning. Some weeks they don’t change much, but if the S&P 500 has really moved, then you’ll see the criteria change over time. This is so I can continue to find top-performing stocks while also keeping the size of the list manageable.
If the list is really big, I will increase the criteria to reduce the number of stocks on the list.
Here is the criteria I am using in February 2024.
If yours is a little different, that is fine. There is no perfect scan. It is just a way to create a list of strong stocks so we can look for patterns in those stocks. As mentioned you can also adjust the criteria up or down to control how many stocks are produced (which you then look for patterns in. The list above produced about 100 stocks to go through and look for patterns in.
Each week on the Swing Trading Stock Watchlist I also discuss top-performing sectors. These are often the same for weeks or even months. If you have limited time, you can also search for stocks only in the strongest sectors. This will reduce the list and save you some time. You can also scan that way: How to Scan for the Strongest Stocks in the Strongest Sectors.
ChartMill Scans for Technical Setups and Breakouts
Navigate to the Trade Ideas tab. The Technical Breakout Setups and Momentum Squeeze Play Setups are where you will likely find cup and handle and continuation patterns.
In addition to the default settings you may wish to add in:
- US Only stocks
- Price above 1 (or whatever you want)
- Adjust performance setting. For example, if the S&P 500 is up 5% over the last 6 months, adjust the 6-month performance to 15% and up (slide the left slider button up to 15%).
Stock Scanning Tips
If you have limited time, create your process around that. You can easily limit scanning, and the analysis, to about 20 minutes an evening. Scan through the top of the list—a certain number of stocks—or scan for 10 minutes. Then check the validity of those patterns and place any potential orders in the remaining 10 minutes.
Use your scanner as a proxy for how healthy the market is for that strategy. If the scanner produces lots of results, that means the market is quite strong. If there are few or no scan results, the market is weak or there are just no opportunities right now for those strategies.
For any strategy, position sizing is key. Know the proper amount of stock to buy—for the risk of the trade, your risk tolerance, and relative to your account capital—before placing a trade.
Cup and Handles and other chart patterns aren’t the only way to trade. Scanning for chart patterns can be time-consuming. If you only have a bit of time each day, even a bit of time each week, check out the Quick Method for Scanning and Swing Trading with Limited Time. It uses a very brief pre-made watchlist and a highly visual strategy so we can flip through the charts and spot the entry and exit signals if they are there. Just another option to consider.
To learn more about scanning, finding explosive trades, and how to trade them, check out my Complete Method Stock Swing Trading Course.
By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.