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
- AVERAGE daily trading volume of 50,000 to 200,000 shares
- Daily percentage gain of 10% or more in a day
Any Stocks That Make The Cut, Ask Yourself:
Why did it make a big gain?
If it was because a company was buying it out and offering a high price per share, chances are you are too late. The stock jumped up to the price being offered. No profit left. If you can’t find any good news, be suspect of the jump.
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. 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.