Day Trading Stocks - Learn The Art Of Stock Picking
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.
Make this your cardinal principle in day trading stocks. Avoid high priced stocks with low volume at all cost. In the same vein, avoid, low priced stocks with high volume also.
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.
Don't choose a stock with a price of more than $100 per share. A stock having a price of more than $100 per share might be overpriced, overhyped making it highly volatile with the potential of retracing. Now, you have further narrowed down, the choice of stocks available for day trading. Now, after narrowing down the stocks in this range of $10 to $100 per share, you need to observe the past few days something like the last three days intraday charts to see whether the price action is bouncing back and forth, back and forth between the two intraday support and resistance levels consistently. What you want is a stock with a good and consistent intraday price swing.
You need to keep yourself away from those stocks that can get affected by government regulations like FDA. I give you an example, suppose you are trading a pharmaceutical stock. The company has got a few drug approvals pending with FDA (Food & Drug Administration). One day when you are day trading that stocks, you hear the news that FDA has announced more test for a super drug that the company had developed and whose approval was pending with FDA. You can imagine what that can do to your stock. So, stay away for pharmaceutical stocks as well as biotechnology stocks.
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 reguire 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!
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