Generating Trading Ideas – [4 Alternative Ways]

Generating trading ideas is an important part of a trader’s daily job. In this article you will learn what possibilities there are for you to find promising values quickly and easily.
Have you ever asked yourself whether you should only trade one underlying asset or rather different assets? What you should trade today or where you can get new trading ideas easily and continuously?

Trading ideas are the result of a creative process that you as a trader carry out alone or in a team at regular intervals in order to browse sectors, stocks, bonds or commodities and add promising securities to your watchlist.
How many private traders use this process regularly?

I do not know. But I have noticed in various conversations that many prefer to just rely on the good old chart technique and wait for “patterns”.

Many traders often answer the question “What are you trading?” with the same answer: “Dax and EUR/USD”. But how can I trade profitably if I spend the whole day looking at 1-2 markets? How often can the hoped-for pattern occur at all on a trading day?

The well-known ex-Goldman trader Anton Kreil once said in an interview

There is a very simple formula: If you can generate many trading ideas, your portfolio will be profitable, if you can hardly generate any trading ideas, you will fail very soon.

This (slightly exaggerated) statement hits the core of trading relatively clearly and at the same time the typical way of working of hedge funds and investment banks.

One thing in advance: I don’t know any trader of the above mentioned institutes who (only) works according to chart technique. Technical analysis is part of the selection process, but never the justification for a trade.

The typical procedure here also initially involves the generation of trading ideas.

There is the option of a top-down analysis.

Path 1: Top-Down Analysis

In a top-down analysis, we first look at the large picture (Top) and then work our way down to the small picture (Down).

What could be the largest possible picture for a trader?

Right, the macro-economy and even more precisely: the whole globalized world.

So, as a first step, we ask ourselves what macroeconomic trends are currently visible in the world.

Population development comes to mind as an example.

While in Asia and Africa the population is growing rapidly, Western Europeans have to deal with stagnating birth rates and therefore an ageing population.

So our macroeconomic overriding theme is population development.

In the next step, we ask ourselves whether I want to deal with the topic globally or regionally. If you work in a team, you could look for a trader as head of the trading office who is familiar with Asian mentalities, because he grew up there and studied there.

He might know if and how to get relevant statistics and which developments can be heard in Asian cities. He spins the idea of the growing population further and asks himself what needs the people there will develop.

Perhaps he will then end up with the two topics “food” or “urban infrastructure” and look for suitable companies.

Another trader, on the other hand, is allowed to look at the domestic market and looks at Germany.

We now mentally follow the second trader and consider which economic topic is being played out here in Germany with regard to population development.

What a surprise: The demographic change due to the aging population.

How do we now proceed with our knowledge?

We leave the macro level and look at the micro level. Where are there companies that deal with demographic development in their daily work?

Two types of companies immediately come to mind: real estate companies and nursing services or homes.

When I walk through my rural home town (about 30 km before Cologne) and pass one or the other real estate agency, I notice that many single-family homes from the 70s and 80s are for sale.

The owners of these houses are now between 60 and 70 years old and notice that their 1000 m² of land and the 3 floors of living space are simply too much effort.

They are looking for smaller, easier to maintain living space with connections to public transport and medical care facilities. The apartments must also be designed to meet the needs of the elderly.

The big issue in Germany is therefore: living in a way that is suitable for senior citizens.

When I then look at the development in my village of 20,000 inhabitants, I see a lot of new apartments suitable for senior citizens and many more in the construction phase. I am aware that this development is currently taking place all over Germany and is far from complete.

How can we now benefit from this trend?

By looking for public companies that create new apartments on a daily basis and on a large scale.

A helpful tool for this is the Onvista stock finder:

…where I can select companies from many different industries and countries. In addition, I can filter directly according to relevant key figures such as dividend yield, P/E ratio, etc.

For our topic, the “construction” sector is a good choice. With two clicks I get corresponding suggestions and directly come across a value that interests me.
Helma Eigenbau AG (A0EQ57), a Small Cap from Germany is a customer-oriented full-service provider.

Now follows the analysis of the company data. What are the equity and turnover trends? What EBITDA is expected?

In order to be able to assess the figures better, one should look at a competitor and place the figures next to each other.

If the microeconomic data are convincing, you have won a potential trading candidate!
NOW it is time for the technical analysis of the value to find a suitable entry and exit point AND THEN consider risk management. The important question is of course: Who will buy after me? Who “pushed” the value after I bought?

It should have become clear that this approach is useless for scalptraders but is interesting for swing traders with a time horizon of a few days up to 12 months.

Way 2: Winner-Loser-List

What does a trader need to be able to trade sensibly?

Liquidity and volatility. The market must allow for reliable buying and selling of the value and must also have healthy volatility.

Even a swing trader is happy to collect the targeted 20% return in 3 days instead of 12 months. Volatility helps him to do so.

How can you find stocks that meet the two criteria volatility and liquidity?

Here you can use the daily winner-loser list. You can find this list on many business portals or websites of brokers. Yes indeed, it is still in the printed daily newspaper, but in times of high frequency trading we don’t want to wait for the newspaper of tomorrow 🙂

These lists usually contain the Top 5 and Flop 5 of a stock index like the DAX. The stocks are in this ranking because it is highly probable that market-relevant news has been published that has persuaded investors to buy or sell.

The good thing is that this volatility usually lasts for a few days and thus offers trading opportunities in different time units.

For the scalper, a short trade might be worthwhile, for the swing trader it is an entry for correction trading and for the long run investor it is worth building up an initial position.

And the liquidity?

We can assume that values from the common and regulated indices have enough liquidity to be able to buy and sell reliably. So even some small caps can be traded sensibly.

Path 3: Twitter and Google Trends

Trading ideas can also be generated via social media channels like Twitter.

We have only had our trading freaks account on Twitter for a short time and I regret the late decision, because interesting charts and market information are offered here every day.

How can you profit from Twitter?

Open an account and select the topics that interest you. If you select stock exchange, trading, etc., you will receive direct suggestions from suitable users.

You can then “follow” the relevant channels and find out about every new tweet.

You can also use Twitter to generate ideas by using topic-related portals to display information and learn about new investment opportunities.

I also have a daily overview of upcoming economic data that is important for the markets.

This includes interest rate decisions of central banks, non-farm payrolls, etc.

You can also simply exchange information with other users, whereby the B2B business is more in focus here.

Besides Twitter there is also another way to gather trading ideas.

The talk is about Google Trends.
Google Trends shows you, as the name suggests, the current search trends. Since Google is the largest search engine in the world with a market share of over 90%, you can rely on the relevance of the data.

On the homepage you can choose between several categories.

You can search specifically in the category “Business”, but you can also filter by headlines, knowledge, etc. as well as regionally or globally.

If the search query is so high that the term has made it into the top 3, you can assume that a market-moving topic has emerged. This brings us back to the topic of volatility, which is so important to us traders.

In addition to the top-down variation just described, we now want to look at the opposite direction to generate trading ideas.

Path 4: Generating trading ideas with the bottom-up method

The bottom-up method is the opposite of the top-down method.

Here we first look at the “specific” and then go up to the general. In other words:

The first look goes into the chart of an underlying asset and if we like it and can make a trade in the near future, we then compare the more general data such as balance sheet, industry and global trends as we go along.

In practice, this looks like this:

  1. First, we screen a lot of charts first. We determine which time unit we want to look at (1h chart, 4h chart, daily chart, etc.).
  1. Once I have found a candidate, I look at the industry and the fundamentals. If the trend here is also in line with the chart, I have found a potential trading candidate.
  2. we print out the charts that present us with a nice pattern and soon offer a trade with a healthy risk/reward ratio and put them on a separate pile (or do without the paper and simply form a watchlist). We only want the tidbits and no half-finished candidates.

4 I will now take a closer look at the values that justify a trade and consider how and where an entry as well as stop loss and take profit can be placed. This step is important, because a bad risk-reward ratio could lead to another exclusion.

This would be the case if the price would face a wall of resistance after a possible entry, but the stop loss would only make sense very far from the entry. Tip: Here it makes sense to look at the chart in higher time units in order to recognize these risks.

After completing the process, I may have seen 300 underlyings pass me by and only about 10 trading candidates remain. But these are then the real kings, which significantly increase my chances of winning.

Depending on the time unit traded, I have more or less effort in terms of research and checking the values. In the daily chart I have maybe 2 x 1 hour effort per week. In the hourly chart much more.


I hope you understand that trading is not just a few “buy and sell” clicks, but a disciplined, regular job.

If you generally only trade 1-2 stocks, I don’t think you will survive long, because the elaborated setup can’t appear that often.

You need trading ideas to place many different stocks on your watchlist and then use chart analysis to concretize the potential trade (top-down). The bottom-up version, on the other hand, begins with chart analysis and ends with a comparison with global trends and future prospects.

Test the individual possibilities to find the best way for you and finally trade sensibly.

Leave a Reply

Your email address will not be published. Required fields are marked *