Day Trading Stocks - Two Must Skills For You To Master!
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.
So you are only going to day trade stocks that have an average daily volume of something like one million shares or more. I am talking about average daily volume not about a one odd spike that gave a volume of one million shares traded on a single 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.
The second important rule that you need to follow is that you are only going to choose stocks between $10 and $100 per share. A price above $10 indicates that the stock has some standing in the market, the company has good health and there are not severe liquidity issues. Below $10, you might find that the stock might not have a liquid market. The most common problem with penny stocks!
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.
However, in the end, I would like say that day trading forex is a much better option as compared to day trading stocks. Currency markets are huge. Daily more than 3 trillion dollars are transacted in the currency market. As compared to stocks where you have to sift through thousands of stocks, there are roughly six major currency pairs like USDEUR, USDJPY, USDGBP, USDCHF, EURGBP, USDAUD that account for roughly more than 90% of the trading volume. So by concentrating on only one or two of these major currency pairs, you can make a lot of pips.
by: Ahmad Hassam
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