- Watch for certain indicators in determining if a stock is suitable for intraday trading. Look for a stock that has a relatively large group of buyers and a larger group of sellers. In other words, watch for liquidity. This enables day traders to buy and sell stock at a rapid pace. To determine liquidity, look at the number of transactions on the market and look at the number of shares outstanding, along with the total number of shareholders of that stock. Also look at the number of market makers.
- Also watch individual volume. A stock eligible for intraday trading must be trading no fewer than 500,000 shares per day. This creates the ability to buy and sell large amounts of stock without changing the price.
- Stocks have actual prices and expected price movements. This is referred to as volatility. There is an up-and-down pattern to volatility, so study the pattern of the movement throughout the day. Watch for stocks that are changing prices over and over in the same day; these are the kinds of stocks intraday traders are looking for. A base fluctuation amount to watch for is $2 in a single day.
- A day trader analyzes the transparency of the price of the stock. Price transparency is the term used when a trader can collect information concerning the order flow of a specific stock. It's also known as market depth. This knowledge aids in calculating the amount of money that can be made on that stock. Pay attention to the Nasdaq II quote system, as this provides information on all bids. Using this information, analyze the stock's performance and price swings.
- Only invest funds that can be lost without damaging the budget. The stocks are not owned for more than a few minutes. Because of the constantly changing prices, stocks are never owned overnight. Intraday traders are not investing; they are speculating on the probability of changing prices on certain stocks throughout a day's time.
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