With more traders taking a shortened timeframe in recent months, discussions are turning to just what makes for a good day trading (or scalping) candidate. Some scalpers have a handful of stocks they exclusively trade, but if you don’t, here’s a checklist to run when looking for trades to catch a piece of the action:
Trade Stocks With Volatility
Check to be sure that stocks you’re considering for day trades tend to move a lot each day. Average True Range (ATR) is a common way to gauge movement, and many charting programs will allow you to scan for this. A stock which fluctuates plenty each day will offer lots of potential for scalping, so make this a requirement.
Trade Stocks With Momentum
Whether they’re in the news or just making big waves in the market, stocks with momentum are the go-to day trading stocks. Pure day traders are willing to go long or short, so the momentum factor is applied for both directions. Recently the solar-related stocks and biotechs have been in play on the long side, while homebuilding stocks and mortgage-related stocks have been day trader favorites on the short side.
Trade Stocks With High Volume
High daily volume levels make it much easier to dart in and out of stocks with minimal slippage. Numerous orders resting at each price level or plenty of shares showing in your market depth window are what you’ll want to watch for. Because day trading usually means frequenting the same stocks multiple times during the day, making sure that the liquidity is there can prevent getting stuck in a trade without a smooth exit.
One other note is that when you find a stock which has already broken out and you’re too late for swing trading [1] it, the odds are high that some money can still be squeezed out of it on a day trading timeframe. Use the criteria above to be sure it passes the test, and then hit it for a few dimes!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com [2]
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]