How to Find Rolling Stocks

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Rolling stocks (made popular several years ago by investor Wade Cook) are stocks that repeat a certain pattern of trading. These stocks have both a support level that they do not trade below and a resistance level that they do not trade above. When looking at a daily chart, they make a roller coaster pattern between these two levels. There are really only two ways for you to find rolling stocks. You either need to purchase the names of rolling stocks from a service that searches them out, or you must spend the time necessary to look at chart after chart yourself until you find several good rolling stocks of your own.

How to Find Rolling Stocks

  • Go to your favorite stock screener that allows for screening by price. Choose a price range for stocks that you can afford to buy. Keep in mind that lower-priced stocks often provide the greatest percentage return when playing rolling stocks. Write down or print out lists of the stock symbols that you find. You do not need to screen for anything other than price if you are playing rolling stocks.

  • Go to your favorite site for stock charts (see Resources Box below for free stock charting services). Set the time frame to 1 year. Set to look at daily prices. Set to look at OHLC (Open High Low Close) or candlestick charts.

  • Insert the stock symbols that you found through your earlier screening and look at each chart individually. You are looking for charts with trading ranges that are basically trading sideways, which repeatedly hit approximately the same low point and approximately the same high point. These stocks are trading within a channel, or trading range. Print charts that look the most promising.

  • Draw lines straight across the chart at the top of the trading channel and the bottom of the trading channel. Very few trades should take place outside of this channel.

  • Determine where each stock is in its trading range. If a stock is at the bottom of its channel, then the idea is that it is now set to trade up to the top of its channel. If a stock is at the top of its channel, then it is probable that it will now trade down to the bottom of its channel.

  • Choose a stock that is at the bottom of its channel and buy 100 or more shares of that stock or find a stock that is at the top of its channel and sell short 100 shares of that stock. Selling short is no more difficult or tricky than buying, or "going long," a stock. You make the same money when you short a stock and it drops in price as you make when you buy a stock and it goes up. You do not need to own a stock to short it.

  • Set up an automatic sale of your stock at a point before it reaches the exact top or bottom of its channel. Alternatively you may set up what is called a "trailing stop" on your stock that will automatically sell your stock if it changes direction in its price. A trailing stop is generally used once sufficient paper profits have been made so that you don't want to give them all back if the stock should unexpectedly change direction.

  • Repeat this process each time the stocks you have found reach the top or the bottom of their trading range.

Tips & Warnings

  • Watch your investments, and if your stock trades the wrong way--especially if it begins trading outside of its normal trading channel--be prepared to sell at a loss.
  • Stock trading is risky and you can lose all or a portion of your trading account if the market moves against you. Past performance is no guarantee of future results. Just because a stock has been trading in a channel in the past does not mean it will continue to do so.
  • Do not trade with funds you cannot afford to lose.
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