Ranking-Based Trading: Picking the Winner

“Two heads are better than one” this classic saying holds true even in trading. When it comes to technical analysis, multiple indicators offer stronger conviction than relying on just one. Unlike the saying “Too many cooks spoil the broth,” in ranking-based trading, it's more like “the more, the better.” When several indicators align in the same direction, the confidence level in the trade increases significantly. 

One of the daily challenges traders face is selecting the right stock to trade. With a wide universe of stocks, choosing the most promising one can be time-consuming. To simplify this, traders often apply multiple technical indicators to a shortlist or watchlist of stocks. These indicators are then used to rank the stocks based on bullish or bearish signals. 

The method is straightforward: 

• If more indicators show bullish trends, the stock is considered bullish. 

• If bearish indicators dominate, it's labeled bearish. 

• If bullish and bearish indicators are equal, the trend is neutral. 

A simple spreadsheet can be used to organize this data and identify which stocks may be ready for action. 

Process of Ranking 

Ranking starts with defining the universe of stocks you want to analyze your watchlist. Next, select the technical indicators you’ll be using. There’s no hard limit; use as many indicators as your strategy demands. 

Each indicator should then be interpreted for its bias: 

• If the price is above the 5-period EMA, it's bullish. Below it, bearish. 

• If the RSI is above 50, it signals bullishness. Below 50 suggests bearishness. 

Once each indicator's bias is defined, the stock gets a preliminary rating: 

• All bullish biases → Strong Buy 

• All bearish biases → Strong Sell 

• Mixed biases → Neutral 

Example: How Ranking Works in Practice 

Imagine a trader is using the following indicators for daily analysis (default parameters): 

• Exponential Moving Averages (EMA): 50, 100, 200 

• Relative Strength Index (RSI) 

• Moving Average Convergence Divergence (MACD) 

• Stochastic Oscillator 

For a bullish trade, the rules are: 

• EMA 50 > EMA 100, and EMA 100 > EMA 200 

• Price must be above the EMA group 

• RSI, MACD, and Stochastic must all signal bullish 

For a bearish trade, the opposite applies: 

• EMA 50 < EMA 100, and EMA 100 < EMA 200 

• Price below EMA group 

• All indicators must align in bearish direction 

If even one indicator doesn’t confirm the trend, the trade is not taken. 
For instance, if a stock like Tata Steel has conflicting indicator signals, its final rank is left blank, indicating uncertainty. 

Data Table 

 Action Table

 Some traders may assign numerical values to each indicator to calculate a cumulative rank. While this method varies, the goal is the same: Identify trending stocks using a systematic approach. 

Conclusion 

Ranking-based trading is like highway driving smooth, fast, and free from frequent stops. All indicators align, offering a clear signal to move ahead. In contrast, traditional discretionary trading feels like driving through a congested city: full of speed bumps, signals, and distractions that interrupt the flow. 

This example provides a simple illustration of the ranking concept. Traders are free to add more indicators, adjust parameters, or even create custom rules to suit their individual trading styles. The ultimate aim is to enhance decision-making using structured, bias-confirming techniques.