Even though there are a lot of ways to look for good stocks to day trade, sticking to the most liquid stocks a given trading day are two ways to filter out a lot of candidates.
March 29, 2006 (Press Release) --
How to Choose a Good Stock to Day Trade
All new stock traders want to know how to choose the “best” stock to day trade. Unfortunately, there is no “best way” to determine this. With tens of thousands of stocks to choose from, the possibilities are endless.
So how is it done, you ask?
There are a few ways a day trader can narrow down his stock market universe to a much smaller number of potential stocks.
One way is for a day trader to stick to the 10 to 50 stocks that have the highest trading volume (or liquidity) in the market. The more liquid or active a stock is, the tighter is the difference between its Bid (best or highest open buy order) and Ask (best or lowest open sell order). This difference is called the “spread.” When trading liquid stocks with tight spreads, a day trader is able to get in and out of a stock easier and his short-term trading costs (which include the spread) are lower. Liquidity and day trading go hand in hand.
Another way for a trader to choose a good stock to day trade is by focusing on stocks that have made or are expected to make important announcements during a particular trading day. These stocks will usually experience a surge in trading volume (liquidity) which is a plus for day traders. They will also move up and down in price more frequently and by larger-than-normal amounts. This is another way of saying that their “volatility” will increase. Good traders can take advantage of this increased volatility and have a greater probability of making money.
A word of advice with this last approach: Traders should not get into a trade right before an announcement (assuming the time is known ahead of time). The sudden spike in price that can occur right after the news hits the market could wipe out a day trader’s account if the price moves in a direction that is unfavorable to the trader. A trader should instead wait until after the announcement to get into new positions.
Even though there are many different ways of finding good stocks to day trade, the above two are classic ones that are easy to implement.
Visit http://www.geocities.com/daytradingtutor/ to learn more about day trading.
All new stock traders want to know how to choose the “best” stock to day trade. Unfortunately, there is no “best way” to determine this. With tens of thousands of stocks to choose from, the possibilities are endless.
So how is it done, you ask?
There are a few ways a day trader can narrow down his stock market universe to a much smaller number of potential stocks.
One way is for a day trader to stick to the 10 to 50 stocks that have the highest trading volume (or liquidity) in the market. The more liquid or active a stock is, the tighter is the difference between its Bid (best or highest open buy order) and Ask (best or lowest open sell order). This difference is called the “spread.” When trading liquid stocks with tight spreads, a day trader is able to get in and out of a stock easier and his short-term trading costs (which include the spread) are lower. Liquidity and day trading go hand in hand.
Another way for a trader to choose a good stock to day trade is by focusing on stocks that have made or are expected to make important announcements during a particular trading day. These stocks will usually experience a surge in trading volume (liquidity) which is a plus for day traders. They will also move up and down in price more frequently and by larger-than-normal amounts. This is another way of saying that their “volatility” will increase. Good traders can take advantage of this increased volatility and have a greater probability of making money.
A word of advice with this last approach: Traders should not get into a trade right before an announcement (assuming the time is known ahead of time). The sudden spike in price that can occur right after the news hits the market could wipe out a day trader’s account if the price moves in a direction that is unfavorable to the trader. A trader should instead wait until after the announcement to get into new positions.
Even though there are many different ways of finding good stocks to day trade, the above two are classic ones that are easy to implement.
Visit http://www.geocities.com/daytradingtutor/ to learn more about day trading.
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