In day trading stocks, you need to learn two very important skills. The first and the easy one is doing the right stock picking. The second is the most important and the difficult one. How to trade these stocks? What I mean by how to trade these stocks is the right entry and the right exit. Without this, you will never succeed at your day trading endeavor.
Finding good stocks for day trading is not difficult with more than 50,000 stocks listed in the US Stock Markets. The most important rule to remember is that you are not an investor. Rather you are a day trader who does not hold positions overnight. No need to think long term. Keeping this fact at the back of your mind, you should focus on the intraday price movements of your chosen stocks.
There are some rules that you need to follow when doing the stock picking. These rules have been developed by different successful day traders with experience. The first rule that narrows down the universe of stocks that you can choose says that only choose those stocks that have a daily average volume of one million shares or more. What this means is that the stock is having an average daily volume of around one million stocks daily for the last many weeks and months rather than having this traidng volume for one odd day.
This rule should be followed religiously by you in doing the stock picking for day trading. You should try to avoid low priced stocks with high volume as well as high priced stocks with low volume. I explain it more in the next paragraph.
Once you have narrowed down the universe of stocks that you can choose for doing day trading, now you need to narrow it down further with this rule. This rule says that choose stocks that are trading btween $10 and $100 per share. Now, a price below $10 just,means that the stock is not well known and there might be some problems with the company. However, a price of above $10 per share gives an indication that the company has good health and the stock is not having severe liquidity problems. You see, liquidity in the stock that you choose is very important. To ensure, liquidity you chose only those stocks that were trading on average with a volume of one million shares.
Stocks above $100 might be overpriced and can be highly volatile with wide retracing swings. Stocks between the range of $10 to $100 have a consistent intraday price patterns and are best suited for day trading. When you pick a stock in this price range, observe its intraday price swing. Study the past three days data and observe the intraday chart patterns to see the price bouncing back and forth between the intraday support and resistance levels. You want a stock that has a good intraday swing.
Don’t trade stocks that are affected by government regulations. For example, a pharmaceutical stock or a biotech stock may not be good. Suppose, an approval is pending with FDA! You are trading that stock when FDA announces more tests are needed before giving the approval. You can imagine what can happen. In the same light, stay away from day trading stocks of companies that are in the process of merging.
Forex day trading can be a much better option for you as compared to day trading stocks if you are really serious in day trading. Currency market is huge with around $3.2 trillion transacted in it daily. Combine all the stock markets in the world and they don’t add up to even one trillion dollar. Currency market is open 24/5 unlike the stock market. So you can trade currency at a time that best suits you. There are six major currency pairs that make up more than 90% of the business transaction in the currency market as compared to thousands of stocks in the stock market that require a lot of fundamental and technical research. By trading only two of these major currency pairs, you can make a lot of money. Give forex day trading a try. It is a better option!