Once i was a young trainee just beginning to learn how to trade, my trainer repeatedly informed me that “you’re only as effective as the stocks and shares you trade. ” While anyone who has recently been trading for long enough can tell you, certain stocks are better to generate profits in than other stocks and shares. A significant part of becoming a constantly profitable day trader is finding and trading the best stocks while avoiding the worst stocks. fusionex
The Qualities Of A Great Daytrading Stock
A great day trading stock has certain fundamental characteristics. I’m heading to list them in declining order, with the first criterion being the things i consider to be the main and lessening from there. Understand that these are just general suggestions and are not guidelines written in stone.
one particular. Quantity
The most important characteristic of a great day trading stock is that it needs to have sufficient volume. A great investment without sufficient quantity can make it difficult to set up meaningful positions without impacting on the price of the stock. Thinly traded stocks and options make it challenging to manage risk as their propagates (the difference between the bid price and the ask price) are larger and it can be challenging to anticipate where you are going to be able to quit your position if your trade goes against you.
The ultimate way to determine a stock’s typical volume is to simply go through the average daily trading volume over the last 10 days or so. Stocks with higher daily trading volumes are more liquid than stocks and options with lower daily trading volumes, and this big difference is reflected in the regular spread of a stock. The exception to this rule is when a company is “in play” as the result of a news item (such as an earnings report) or any other catalyst. When a company is “in play, ” an improved metric to determine it is liquidity is not a trailing average daily trading volume, but rather the current day’s volume as being “in play” can drastically change a stock’s trading characteristics.
As a general rule, great day trading stocks will control more than 50, 500 shares a day. Examining my trading results, I have found that stocks that trade lower than 50, 500 shares daily are usually not worth trading because their lack of liquidity makes entering and exiting a position very hard. Furthermore, you may have to maintain a posture in these very finely traded stocks for much longer than you had expected due to their shortage of volume.
installment repayments on your Movement
A great day trading stock must not only be liquid enough to transact, but it also must give you a reason to trade it. That “reason” is merely intraday price movement. A fantastic day trading stock must have an adequate intraday range to enable you to generate profits from its price movements. A really liquid stock that trades at the same price all day long will obviously not provide you any opportunities to make profitable investments in it. Contrast that with a stock which goes from $56. 00 to $57. 50 back again down to 56. 60 before shooting up to $59. 00. The gyrations of this stock provides day traders with the volatility necessary to generate income!
The easiest way to determine whether a stock has sufficient intraday motion is to look at the stock’s average trading range during the lastly 10 days or so. Larger average trading runs are better as they show that the stock will have enough intraday motion to trade. Nevertheless , the same exception that applied above to the quantity attribute applies here as well: a stock that usually has a tiny daily price range can explode with volatility if this becomes “in play. ” These stocks and options typically have increased varieties as well as increased trading volume as investors weigh in on the impact of an income report or a takeover rumor.
The final characteristic of a great day trading stock isn’t a necessity, but should instead be seen as an added bonus. A stock that is the subject matter of your significant news item may be a great day trading stock when needed that the news is released. Instances of news items that could impact the price of a stock include earnings reports, upgrades and downgrades by analysts in the stock, takeover rumors, fraudulence allegations (seen recently numerous Chinese reverse-merger companies), medicine trial news for biotech companies, same-store-sales numbers for retail companies, and other great tales.