One of the most common ways to invest in stocks is to do so with the intention of day trading. Plenty of traders pursue day trading strategies while online stock trading as it can provide more instantaneous rewards than long term trading, which can take a few months before any profits are potentially reaped.
Online stock trading with a day trading strategy is a popular choice for many traders but before investing it is important to select some stock picks that are suitable for day trading. These stock picks should possess a number of characteristics which makes them ideal for day trading and without these characteristics they will be fairly useless to the trader hoping to apply day trading strategies. So, for the investor who is online stock trading and hoping to become a successful day trader, what are the key principles they must look for when selecting their stock picks?
When online stock trading, a key aspect to consider is the volatility of a stock. Choosing a stock with reasonably high volatility is vital for those using day trading strategies while online stock trading. Volatility is a measure of the amount a stock changes prices within a certain period. A stock with relatively high volatility is likely to fluctuate in price quite a lot during a day and this is ideal because it opens up opportunities for traders to exit and enter the market. When picking a stock for online stock trading, it should approximately fluctuate by about $2 per day in price. This allows plenty of room to make buys and sells and create a profit during a day of trading. If a stock’s price moves less than this there will be few opportunities to make a move in the market while if it is higher it could be deemed too volatile and risky.
High liquidity is another crucial characteristic for any day trader making use of online stock trading. High liquidity demonstrates that a stock has a large amount of buyers and sellers and this enables traders to buy and sell relatively quickly. High liquidity also lowers the difference between the ask and bid price and therefore the trader saves money every time they make a trade. This is useful because when day trading often a lot of trades will need to be made throughout the day.
When applying day trading strategies to online stock trading, one of the most important things a trader should be aware of is price transparency. Although this doesn’t directly apply to any particular stock it is something all traders must consider when choosing which stock exchange to trade on. Price transparency allows traders access to the information regarding the order flow of a stock. This order flow comprises the amounts of the stock being offered as well as the bid and ask prices at various levels. The best stock exchange for price transparency is NASDAQ because it provides this information to any traders while other stock exchanges are not so generous.