Choosing stocks for intraday trading can be very tricky for new traders. Professionals execute strict risk management rules to limit losses, as the first rule in investing is to protect capital. One must not get emotional about trades, or it can lead to excessive trading, which often has expensive results.
Successful day traders set trading rules they follow and alter over time. Here are some of the factors traders look for when selecting stocks.
Profiting from Volatility and Volume
Day traders have the greatest opportunities for profit when the market experiences volatility, which is measured by the VIX index. Stocks often make their biggest moves up or down in the first hour of trading. This hour is usually when the volume is highest for the day, other than the final hour when big investors do heavy trading.
When volume is high, it often confirms a trend in the direction of price movements. Traders can find out from stock charts and trading platforms how high the day’s volume is compared with average volume. Many times traders will pile into stocks that make financial news as the price rises. But buying into a news story also presents risks since stocks often decline once the hype from a news story dies down.
Volatility and volume are key indicators for day traders to consider for trade setups by checking a value known as beta. A stock with a beta value of 1 indicates a significant volume that is conducive for day trading. The higher the beta, the better. Stocks that move in patterns within a channel often make ideal intraday trades. Volume is a strong indicator of how significant the price action is.
Making Stock Selections
Professional day traders use software that gives them access to trading tools and market analysis tools such as charts and graphs. Looking at high volume stocks of lesser-known brands can give the day trader an edge.
One of the reasons to avoid low volume stocks is that it’s possible to get trapped in them, due to lack of buyers. Certain low volume stocks, however, are thought of as defensive stocks in periods of market panic. One of the key ways to reduce risk is to day trade exchange-traded funds (ETFs).
About Raging Bull Trading
Raging Bull Trading is a trading program that teaches both new and experienced traders about the art of trading and the stock market. Originally launched in 2010 by professional traders Jeff Bishop and Jason Bond, Raging Bull Trading offers a comprehensive course on mastering stock trading from industry experts. The program includes lessons on stock picks, stock ideas, how to get started in trading, and an overall stock market education.