SIMPLE TIPS FOR THE DAY TRADER:
If you are comfortable executing many trades daily then finding a trading plan that is relatively simple can assist you greatly. As I have day traded for four decades the trade decision making process I use has been honed by sheer experience. For relatively new traders a simple plan is best. I believe the three most necessary factors contributing to the decision making process are Price, Volume and Daily Movement.
A day trader must always keep in mind the amount of capital that is available to trade. If you happen to select a high priced stock , it reduces the number of shares you can purchase, perhaps only a few hundred shares and even a $0.20 to $0.30 gain will not garner a good profit when weighed against the risk. Better to select stocks trading in the $5.00 to $20.00 range where you can take on a 1000 to 5000 share position and where that same $0.20 to $0.30 gain equates to a great short term profit. Two or three trades a day like this can amount to a monthly profit of $20,000.00 to $30,000.00.
Short term traders must be nimble and thus be able to enter and exit in seconds. In order to do this average daily trading volume of the issues you trade must be sufficient to encourage tight spreads and reduced volatility. My rule of thumb would suggest you never trade stocks with less than 1 million shares changing hands each day.
You should always search for those stocks that record relatively wide price swings, but with good volume, during the trading session. This allows traders to take advantage of intraday volatility, with no consideration for gaps. A suggested guideline might be to select stocks that have a daily trading range of at least 5% over the last month.
If a trader is able to trade stocks that move regularly, there is no need to find the “next big mover.” As you gain more trading experience and confidence you may even find stocks that also have narrow ranges and are suitable for catching small consistent moves.
Frequently, traders find a stock whose movement they discover and have great success in trading. As a result they may trade this stock for days or weeks on end thereby eliminating the need for added research and no necessity for searching for other stocks.
If while searching you find too many potential trading candidates then make the criteria more stringent so that you are only left with a handful of stocks. Your purpose is to find stocks that always move intraday, or that fit within a certain intraday pattern that complements your trading style and has a fairly consistent range of motion. And please remember, even day traders should use “stop loss” orders to minimize losses and protect trading capital.
