Day Trading Tips On Suitable Stocks
This article provides useful day trading tips and advice from successful day traders. It explores what kinds of stocks are suitable for day trading and why. These tips will be of immense help for those who are entering the day trading arena for the first time.
A question that is commonly asked by novice day traders is: 'what kinds of stocks are good for day trading?'. Stocks should fulfill some basic criteria in order to make them a good bet for day trading and these are: 1) liquidity 2) volume 3) volatility and 4) price transparency. Day trading tips from experts always advise that trading with liquid stocks is crucial to your success.
What is liquidity? A stock is considered 'liquid' when it is being bought and sold by enough people to enable a trader to buy and sell it quickly. In general, a liquid stock has a high number of transactions on the market, a high number of outstanding shares, high numbers of shareholders and a high number of market makers. These are important day trading tips to take note of because trading with these kinds of stocks will minimize your risks.
Since day trading relies on fast paced trading at reliable or predictable prices liquid stocks mean that the bid/ask spread on a stock is lowered. This translates into lower execution costs. Good day trading tips for liquid stocks may come from paying attention to the big companies on Nasdaq 100, the Dow Jones Industrial Index and the NYSE.
What about volumes? Suitable volumes are 500 000 shares or more per day. This high-end stock means a day trader is able to buy or sell large volumes without affecting its price. Next, we will discuss day trading tips for dealing with the issue of a stock's volatility.
The volatility of a stock is its price movement up or down over a given time span. Day traders work within a one-day time frame so they will prefer to trade in stocks that move by $2.00 or more within one day. What about day trading tips for dealing with a stock's price transparency?
How transparent a stock's price is refers to how much information can be obtained on its order flow or market depth. The Nasdaq level II quote system makes information available on each and every bid and not just the highest and lowest bids posted. Stock quantities that are being offered and bid on and related prices are also made available to traders via these quotes. Read on for one of the lesser known day trading tips about Nasdaq level II quotes from our experts.
If you have Nasdaq II level information you will be able to gauge how strong or weak a particular stock is and how its price is likely to change over the course of the day - novice traders who rely on free Nasdaq level I quotes only, should make use of day trading tips like this one.
These day trading tips would not be complete without a mention of the fact that many successful professionals trade only on Nasdaq stocks. Why? Quite simply, these stocks feature better price transparency data than those on the NYSE or elsewhere.
Novice day traders are well-advised to learn what makes a stock suitable for day trade. Day trading is very different from Swing Trading
or more long-term forms of stock market trading. Knowing the ins and outs of a good stock will enable you to trade with a reasonable degree of confidence. Follow the day trading tips above and make sure you understand what makes a particular stock a good choice. This will minimize the risk of making a costly mistake.
