![]() ![]() For various reasons, trading volume often spikes before big upside or downside moves. Look for companies with unsteady balance sheets and a history of earnings beats or misses.Īlternatively, examine the Trade Volume Index for specific firms. Likewise, volatility within specific firms can be brought on by unpredictable cash flows or surprising earnings reports. Unfavorable events caused quick downside moves that allowed enterprising day traders to buy fundamentally sound names at steep discounts. For day traders, firms that have been mispriced due to macroeconomic factors or external events offer particularly attractive opportunities.ĭuring much of 20, the Eurozone crisis caused a prolonged, largely artificial volatility spike that overrode the rational instincts of even the most seasoned traders.Īnother resounding and much more recent example is the Covid-19 pandemic in early 2020. There are many different types of market volatility. In fact, when the market is uncertain, it could turn into a good day of trading for you. A stock becomes volatile when the distributing company’s available cash is inconsistent.Īs a day trader, you can take advantage of the cash discrepancy and earn a profit. ![]() Volatility Is KeyĮxperienced day traders tend to favor volatile stocks. Even if you find yourself on the wrong side of the trade, these equities usually offer an easy exit strategy that can reduce your losses. Ideal short-term trading candidates have ample share floats and trade at high multiples relative to their peers. Furthermore, a liquid stock may be easier to sell. When you purchase liquid stocks, the cost is generally cheaper than other stocks. Accordingly, look for equities that split this difference. However, highly liquid firms tend to trade at lower multiples than less-liquid names. It’s very difficult to day-trade equities that lack large share floats. In most situations, you should trade companies in sectors that you have a good understanding in. ![]() Therefore, you should be careful on the sector you want to trade. Similarly, health care stocks, such as those in the biopharma sector tend to show some volatility often, when there is an issue with the FDA. For example, technology stocks like Meta Platforms and Snap tend to be more active than sectors like materials. Some of these sectors are communications, consumer discretionary, real estate, technology, utilities, industrials, financials, materials, consumer staples, health care, and energy.Īll these sectors have different characteristics. These equities are usually put into different sectors based on their industry. As mentioned, there are thousands of stocks listed in the US. ![]()
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