This is something beginners don't pay excessive attention to because they don't yet realize just how much wide spreads can damage your bottom line. The daily trading volume largely influences the spread between bid and the offer so be sure to trade stocks that have the average daily volume over 250,000. Stocks that have low every day volume may exhibit strong volatility nevertheless the spreads will be so wide that your profit potential between the time you enter the trade along with exit the trade will be wiped out due to the gap between the bid and also the offer. Before you make your concluding decision to enter a position check the bid and offer live and pay attention to how far apart the spread in fact is. This will give you a good suggestion what your loss will be around the spread alone.
Each stock that I decide upon my daily hit list as I love to call it goes through a filtering process that I've been using for quite a while now. It's a simple process that can be used and adjusted to your standards. Once you begin using this method it will become second nature and you may find that whenever you look at stocks you will automatically begin analyzing and thinking if the item fits your criteria subconsciously.
The first and the simple factor I look at is the expense of the stock. If I'm going long I usually stick with stocks that are usually priced over $20.00. If I'm selling stocks I might look for lower priced stocks and shares but I never go underneath $15.00. You want to find stocks and shares with strong volatility so always try and go for the higher priced stock when you have to choose between two different stocks and shares. There has to be a good reason for me to see a stock that's priced within the low range, otherwise I stick to stocks that are priced between $30.00 and $150.00 per share. I find that more costly stocks have more intraday price volatility than more affordable stocks. One of the biggest driving factors for individual stocks will be their sector. Statistically sectors have the effect of roughly 70% of all mobility of individual stocks. So knowing what other stocks in your chosen stocks sector are doing can be quite important in determining if you wish to add the stock to your current daily hit list or not really. Take gold for example you can see by comparing these two separate stocks the way they move in the same direction a lot of the time. If you look at sectors such as oil, semiconductors, as well as dozens of others you will see very strong correlation between person stocks.
Another important factor that you should examine prior to entry will be the daily trading range. Some stocks have relatively small trading range that creates them bad candidates for stock investing. However, every stock at one point or another irrespective of their typical characteristics goes by using a range expansion period. This usually occurs when there are numerous fundamental news related to the exact business industry or the company itself and has a significant effect on the daily trading variety of the stock. These range expansion periods are usually ideal periods for day trading so be sure to know how to determine in the event that significant range expansion is going on. I prefer to use the normal True Range indicator to figure out range expansion. I wrote several articles on using the ATR to determine the daily range and you will find them at Marketgeeks. com. To put it succinctly the ATR measures the every day trading range and averages the whole over a specified period of time. You should make sure your ATR is significantly increasing and making a minimum daily range of $2. 00; otherwise the stock won't provide you with enough profit potential to help to make your risk to reward amount high enough to trade it in the first place.
Notice how the two distinct companies are moving almost identically together. You will double your place by trading these two stocks at the same time.
Not paying attention to correlation is one of the most common mistakes beginners make when they create their hit lists. I don't know why this happens but many traders don't think correlation is something useful. Remember if you are trading two stocks which are trading similarly you are doubling your risk rather than diversifying it. You goal in picking the best stocks for day trading is always to find stocks that are not correlated together. This will give you the best diversification and opportunity from your current daily hit list. I recently participated in a seminar and noticed one trader who had been holding four semiconductor stocks at the same time. This is a big red flag you can avoid by doing proper connection analysis. Trade stocks in totally different industries as far apart from each other as possible. This way you're going to get the best diversification and probability to profit from different sectors.
When choosing the right stocks for day trading or swing trading be sure to follow these basic guidelines. Always pick more costly volatile stocks that are going through a range expansion. Make sure you look at real time spreads between the bid and offer to be sure the spreads are tight. Always look at correlation and sector analysis before selecting your stocks for ones daily hit list.