Making Sense of the Data Blizzard

Active traders need to digest massive doses of data every day. This challenge requires real-time screens that focus undivided attention on the most critical issues of that particular session. It also demands a well-constructed filtering process that weeds out the noise and secondary issues that don't yield immediate profits.

Market players approach data management in different ways, depending on the strategies they've built through experience. In this column, I'll outline four techniques I've found extremely useful over the years. I hope they will offer a template to optimize your own real-time information flow.

3D Charting

My main data screen has three charts linked together so that it pulls up a multidimensional view of every ticker I look at. These charts are set at daily, 60-minute and 15-minute views. This way, I don't get blindsided by a long-term trend when trading a short-term rally or selloff. It's amazing how a resistance line in place for five years or more can screw up a position you're holding for only a few hours.

All three charts use the same technical indicators. On top, I display a 13-bar Bollinger band, eight-bar simple moving average, 50-bar exponential moving average and 200-bar exponential moving average. The short-term averages work well in trending markets, while the longer-term ones pinpoint expected retracement levels during pullbacks.

The chart's bottom pane is relatively simple, with just two indicators. The 5-3-3 stochastic exposes hidden buy-sell cycles at work in the three time frames being observed. I also keep a volume histogram under the price bars to follow transaction flow. But I rarely look at the indicator on intraday charts, because it isn't predictive most of the time.

I don't look at more technical indicators, because price patterns are far more important than all the wiggly lines we throw onto our charts. In fact, most indicators are just prosthetic devices for traders who have little faith in their ability to read pure price action. As far as I'm concerned, simplicity equals vision during the market day.

Index Futures Oscillation

I can't imagine watching the intraday markets without following the Globex futures, tick by tick. We trade in an environment where baskets, ETFs and arbitrage link together just about every liquid instrument on the planet. I estimate that 60% to 70% of all stock movement is tied directly to oscillations in the index futures or commodity markets.

Price bars on my 15-minute S&P 500 index futures chart are color coded by higher or lower closes. It's a powerful visual tool that exposes intraday buy and sell cycles in the same way that the the 5-3-3 stochastics do. I also keep continuous trend lines on these intraday charts showing swing highs and lows that may have printed many months earlier.

Spotting Convergence-Divergence

In addition, I keep multiple screens with text data showing progress on 50 stocks or more. These windows include all the picks from the Daily Swing Trade watch list, as well as multiple issues uncovered in my nightly scanning. Note how I've parsed the data on these stocks. This is the type of information I find most useful during the market day.

The opening price is the most important piece of data on this text screen. That level is a major testing ground for active stocks in the intraday markets. Simply stated, strong issues can hold well above their opening price, while weak ones fall below it. This single observation has saved me thousands of dollars over the years.

The relationship between volume and average volume is another key tell in real-time analysis. Stocks trending below average volumes tend to go nowhere during the day, while those trending above are good candidates for breakouts and breakdowns. Just remember that 40% or more of daily volume can be generated in the first hour of trading.

Sorting Hot-Cold Sectors

I track dozens of sectors with a list of ETFs and indices that covers a wide range of market activity. All I do is keep this text screen sorted by percentage gains for that session. This lifts the day's leaders to the top of the list and confines the laggards to the bottom. It's a simple way to find what's hot and what's not during the market day.

Finally, let me offer an opinion about financial television and news services during the market day. I've been on CNBC a half-dozen times and enjoyed every minute of it, but laid-back market chatter can be a major distraction when you're digesting real-time data.

I deal with this conflict by turning off the TV and keeping it off all day long.

Instead, I follow a news service, on a continuously updated Web site, that lists analyst calls, earnings releases and all the market news that's fit to print. I track this data flow throughout the day, watching how the ticker reacts, as opposed to trying to interpret it myself.

I'm also addicted to The Street.com during market hours, as I have been since the late 1990s. The layers of instant analysis here fill in the missing pieces, especially on topics outside my expertise in technical analysis and trading. I also read the blogs religiously, because the extra trading eyes help me decipher the mysteries of the market day.

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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