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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » How to Choose a Good Stock to Day Trade

How to Choose a Good Stock to Day Trade

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1How to Choose a Good Stock to Day Trade Empty How to Choose a Good Stock to Day Trade Sun Feb 05, 2012 9:46 pm

notme

notme
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
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.


source http://express-press-release.net

amilaela

amilaela
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
thanks

https://www.facebook.com/profile.php?id=100001851586843

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