Volatile Stock Trading Strategy
If you seek big returns over short period of times, it is crucial you locate stocks with high volatility. Volatile stocks have the ability to make double digit gains (or losses) within a day or two. Since the reward is high, you must be willing to accept a high degree of risk.
The secret to finding volatile stocks to exploit comes in knowing what to look for. Since stock prices are driven by nothing more than simple supply and demand, it would only make sense to look at stocks with a high demand and a low supply of shares outstanding.
Stocks with a small amount of outstanding shares (shares available to the public) can usually be found amongst lower priced stocks.
In the screener, you want to enter the following search criteria:
- Stocks that are priced $2 to $10
- Daily trading volume of 50,000 to 200,000 shares
- Daily percentage gain of 10% or more in a day
For any stocks that show up on the list, you need to ask yourself:
- Why did it make a big gain?
- Will the momentum last a couple days more so you can cash in?
Look at the stock’s chart and make sure it has not rallied too much recently. Always remember, “What goes up must come down”. If the stock has gained 50% in the last week, you may want to pass. It’s probably made its gains already and profit taking will kick in soon.
On the other hand, if the jump is only the first or second such recent jump, it may be at the beginning of a rally that you might want to get in on.
Check for any good news that might have caused the jump in price.
To take this trading strategy to the next level, read Part 2.