Stock Trading - How To Pick Stocks For Stock Trading
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Stock Trading: How to Select the Best Stocks
Overview
Finding the best stocks for trading, especially day trading, requires a strategic approach. I focus on stocks that are part of the S&P 500 because they attract major institutional players like mutual funds. Within this index, the Nasdaq 100 Composite stocks offer the kind of volatility that is ideal for active trading.
Key Points
High Volume and Volatility
When selecting stocks, I prioritize those with a considerable trading volume, typically more than 20 million shares per day, though 30 million is preferred. These stocks should also exhibit substantial daily price movements, with a trading range of at least $2 to $6 or more. This volatility allows me to trade both long and short positions within the same day.
Price Action Focus
I'm not concerned with whether a stock closed higher or lower the previous day. My interest lies in the current price action, volume, and volatility. Major market players, such as momentum traders and hedge funds, contribute to this action, driving significant price shifts.
Utilizing Institutional Activity
I leverage the activity of major institutional investors as a de facto research team. Their buying and selling patterns influence stock price, volume, and volatility, offering a roadmap for traders. This visibility helps identify which stocks are "in play."
Trading Strategy
Building a Watch List
I maintain a primary watch list of promising stocks and a secondary list featuring every stock in the Nasdaq 100. At market open, I monitor these lists for volume and price movements to identify trading opportunities.
Pattern Recognition and Execution
I look for familiar patterns and consult the Level II screen to understand market maker actions. Once I see a favorable setup, I execute trades, either buying or shorting, backed by a tight protective stop to manage risk.
Focusing on Familiarity
Continuing with a stock that performs well for me is a key strategy. Consistently trading the same stock allows me to understand its behavior intricately, improving my trade decisions.
Essentials for Successful Trading
Direct Access Trading
A direct access day trading account is vital. It facilitates immediate market orders, aided by software that includes Level II data, charts, and technical indicators.
Education and Training
Before diving into stock trading, a comprehensive day trading course is essential. Understanding market dynamics, trading patterns, and strategies not only mitigates risks but also increases the likelihood of success.
By following these guidelines, focusing on high-velocity and high-volatility stocks, and using the right tools and education, you can enhance your trading strategies and outcomes.
Good luck and successful trading,
The Maverick
Larry Schade
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