how to select stocks for day trading?
Day trading, often lucrative yet very risky trading style, which lures all the active traders alike! A trade which does not last more than a few hours and often provides ample profit opportunity is bound to attract a lot of trader and unfortunately, a lot of green horn traders who, while being attracted to this day trading, often neglect possible pit falls. Today, in this article, we are going to discuss the very basic question of day trading, viz: how to find suitable day trading candidates?
As mentioned earlier, day trading is the trading style, where you start and finish a trade well within the time span of market trading hours thus typically you close the trade before market closing, with out creating any over night position. So the stocks, which potentially make substantial movement in a single day, are considered best choice for such activity. These stocks often show the following phenomenon:
Volatility
A stock which exhibits enough movement during trading hours is considered highly volatile; unlike some stocks, which trades within a narrow range, the volatile stocks often makes substantial up move or down move before settling down to a closing price. Since these stocks moves a lot, so they offer ample trading opportunity.
Liquidity
Liquidity is the measurement of how readily one can buy or sell a stock. Some stock shows very narrow bid and ask price gaps, which often ensures that a trader can buy or sell at his preferred price. These are liquid stocks. On the other hand, there are some stocks which show big difference between bid and ask price, these are illiquid stocks. Here, due to a huge difference between bid and ask price, the profit, which could be earned otherwise, may be erased fully. So one should avoid illiquid stocks during day trading.
Volume
Volume plays one of the most important roles in day trading. Since without considerable trading volume, a trader will face problems during while buying and selling the stocks, and since in day trading, time is essentially limited, so trading the stocks which generates considerable volumes is always the best practice.
So, in short these are the basic points which one must remember while choosing stocks for day trading.
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