How To Scan For Options Trades

How to scan for options trades

The radar was one of the game-changing battlefield technology in World War II.

How to scan for options trades

It allows you to find out the speed and position of your enemies without actually seeing them. This ability is exactly what a swing trader needs with the vast number of financial markets out there.

Looking for trading opportunities by poring over charts manually is primitive and inefficient.

Instead, use your market radar to find swing trading opportunities efficiently.

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With a basic market scanner and a few lines of simple codes, you can generate a short list of swing trading opportunities in minutes.

Here’s six simple swing trading scans to get you started.

We have included the pseudo-code for each scan so that you can adapt them easily for your market scanner.

Six Swing Trading Scans

1. ADX Trend Scan – Searching for the Holy Grail

This scan uses the trading rules of the popular Holy Grail trading strategy from Linda Bradford Raschke, an experienced trader who has conducted intensive research into the art of swing trading.

This strategy finds pullbacks in trending markets, which are the best swing trading setups.

The ADX indicator we used in this scan is a great tool for finding trending markets.

Pseudo-code for ADX Trend Scan

  • ADX(14) is higher than 30
  • ADX(14) in this period is higher than ADX(14) in the last period
  • Current bar high is higher than SMA(20) and current bar low is lower than SMA(20)

The first two lines search for trending markets.

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The last line finds a bar that is overlapping with the SMA after a retracement.

2. ADX Sideways Market Scan – Range Trades Galore

Other than finding trending markets, the ADX indicator is also useful for finding sideways market.

The Right Way to Scan For Swing Trading Setups

This one-line scan zooms in on sideways markets where range trading setups like the Gimmee Bar have a higher success rate.

(Learn: The Secret of ADX Trading)

Pseudo-code for ADX Sideways Market Scan

  • ADX(55) in this period is lower than the ADX(55) in the last period

An increasing ADX value highlights trends and a falling ADX value implies trading ranges.

After applying this scan, check the charts to confirm the sideways market with the help of Bollinger Bands. In a sideways market, prices are more likely to stay within the bands.

3. Hull Moving Average (HMA) Slope – Surfing the Market Waves

I am not a fan of exotic moving average types, and I tend to stay with simple and exponential moving averages.

How to scan for options trades

Alan Hull’s HMA is an exception.

Put on a 21-period HMA on your favorite chart. You will see that it is unusually smooth and matches the wave-like movement of the market.

How to scan for options trades

Tracking the turning points of HMA is a simple way to follow market waves.

Important: While the HMA is one of my favorite trading indicator, it is not the Holy Grail.

Pseudo-code for HMA Slope Scan

  • HMA(21) in this period is higher than HMA(21) in the last period
  • HMA(21) in the last period is lower than HMA(21) two periods ago

This code finds markets in which the HMA slope just turned positive, implying that a bull swing has started.

Apply the same logic to find potential bear swings.

(Learn: HMA Trading Strategy)

4. Extreme Volume – Climatic Moves

Extreme volume days are always significant for swing traders.

How to scan for options trades

Trading days with high volume start new trends or end old trends. And the best thing is that market scanners can find extreme volume days easily.

I use the concept of Bollinger Bands to find trading days with extreme volume.

Pseudo-code for Extreme Volume Scan

  • Volume is more than three SD(233) above the VolMA(233)

SD – Standard Deviation, VolMA – Simple Moving Average of Volume

(If your market scanner does not allow you to nest volume as an input of Bollinger Bands, there is a simpler scan.

Scan for the highest volume in the past 233 days.)

An extreme volume day with a wide gap might signal an exhaustion gap.

Six Swing Trading Scans

Learn how to trade exhaustion gaps with our review.

5. Impulse System Scan – Using Momentum as a Guide

Alexander Elder used an EMA and the MACD indicator in his Impulse System to determine market momentum.

The Impulse System scan is a handy tool for swing traders even if you do not trade its signals.

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It is an effective filter for any swing trading setup. Avoid trading against the Impulse momentum to minimize bad trades.

Pseudo-code for Impulse System Scan

  • EMA(13) in this period is higher than EMA(13) in the last period
  • MACD(12,26,9) in this period is higher than MACD(12,26,9) in the last period

This simple scan uses two common trading indicators to find candidates for a quick bullish momentum trade.

How to scan for options trades

Replace “higher” with “lower” to find bearish candidates.

6. Price Action Patterns – Bundle of Five

Trading indicators are great for scanning the market as they give objective values that are easy to interpret. However, that does not mean that we cannot scan for price action patterns.

With our Price Action Pattern Indicator for Ninjatrader, you can scan for the five patterns below.

Ninjatrader is a free yet powerful charting platform with market scanning ability.

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End-of day prices are free as well. So for swing traders, Ninjatrader is completely free.

Get this free indicator now and start scanning for your favorite price action patterns.

The Right Way to Scan For Swing Trading Setups

Scanning the markets with the simple scans above is the first step to finding swing trading setups.

Do not jump into a trade just because your market scanner says so.

Unlike purely mechanical trading systems, we do not need to optimize and back-test for the best parameters.

We are simply using market scans to find interesting market conditions for further analysis.

After getting a short list from your market scans, fire up your charts and look for the best swing trading setups.

Use the science of swing trading in your market scans, and practice the art of swing trading in your chart analysis.

(Learn the art of swing trading with The Master Swing Trader by Alan Farley.)

Read more about Swing Trading, Trading Indicators