Scanning was always the area which gave me headaches as lots of nuances to be taken into consideration like sector strength and price action. But this was one of the areas which helped me improve a lot in stock selection and helped me to strong scripts from average ones. Here is my scanning process for all to cut your learning curve shorter.

Step 1- On a daily basis post market closure, you have to go through the Universe list of stocks. What is Universe’s list of stock? This is a list where you apply a minimum basic filter mostly liquidity to get the names of tradable stocks as per your position size. This is the basic filter I use to extract the list on a weekly basis. Kindly change the volume as per your Portfolio size.

Step 2- Now once you have the universe list, Let’s say you are scanning it in the evening after the close. You have to focus mostly on the top movers of the day approx. 4% or plus ones. You can go even higher like 6% or plus but I check till 4%. This will give me less than 100 stocks in a day to scan which is quite normal to do.

Step 3- What all to look for?

• Are you seeing a bunch of stocks from the same sector/theme/group? If yes then put them into a separate list to scan further.
• Are you seeing any stock from an already strong sector either breaking out of a good base or near the breakout areas? If yes, they again go to the shortlist.
• Ones which are getting very high relative volumes compared to the 50-day average volume like 500% plus, they also go for further scanning.

Like this, you have created a basic list from the big list. So let’s say from 1000s of stocks you narrowed down to less than 100 stocks.

Step 4 – Now comes a very important part, this part you can perform on a weekly basis also as you will get a good list over the week to study on weekends. Now through your daily shortlisting, you may have narrowed down to say 6-7 sectors along with what you had shortlisted in previous weeks. First of all, segregate the stocks in sector wise list from here to get a bigger picture and the strength in the sector. If you don’t already have a sector list ready, then add other stocks from the sectors for further scanning. Now you have sector-wise lists of the strongest-looking sectors.

Step 5: Here comes the most important stage – Filtering out to the best sectors Now we have to use basic sense by asking us simple question. Does the sector have a big catalyst or possibility of giving bigger moves over time or they don’t have much fuel possibility so a short mover? For this just think about what the sector is into, For example – You shortlisted a sector and its chemicals. Now if you do some research and look for factors which can help chemical companies do well going forward at least for a few quarters, you will find answers.

Like at this stage just basic research will tell you that chemical companies are facing headwinds means the global scenario is not very much into their favour. This tells you immediately that there is not much of a trigger or catalyst to the sector so it’s probably a short-term move and let’s keep it on the list of short-term sectors. And similarly, you searched for another sector where you saw that huge policies are coming in the sector in India and worldwide. So means a lot of push is being given to that area, which means a good catalyst and now if you analyze further by thinking whether it’s a few months’ push or to complete the goal they need long periods. This will tell you about whether they are bigger trends or smaller ones.

Step 6: Like this, you have now shortlisted bigger catalyst trends sectors and short-term sectors. Isn’t it obvious which sectors we should prefer? Which ones will have more strength and better possibilities? Definitely the ones with the bigger catalyst!! Now comes the time for Techno funda analysis of stocks !

Step 7: Techno funda Analysis of particular stock price action Now we need to pick better opportunities from the shortlisted sectors. First, go through their weekly charts and Daily charts to figure out which ones are at which stage of the cycle and pick the ones with clean price action. Are they building a big base to flag or the bus has been missed? On this basis filter out the best ones where you still have opportunity left.

Step 8: Then if you check some fundamentals you can filter out based on valuations. Will give just a brief on Fundamentals and leave the rest for you to study and figure out the significance of the terms. 1. ROCE 2. Revenue and profit 3. EPS acceleration 4. PE multiples 5. Debt/ equity.