The Search for THE Day Trade!
This article was originally posted by “Traph” who contributed many articles which can be found on www.topstocks.com.au . I highly recommend Topstocks to you as Topstocks as the first place to go when you are researching forex or shares. You can join for free by clicking here.
We have come a long way from first analysing an intraday chart in an attempt to pick entry and exit points. So how are we likely to locate that illusive day trade?
Some will call it the Holy Grail of opportunities. Even an entry under $10k could easily realise 10% in an hour or even in minutes. But how do we locate this stock and anticipate it’s run?
Every trader will have a style and organisation of their own. These styles will differ from person to person but there are basics that MUST be followed and one must have the ultimate ingredient within! The urge to succeed no matter how small the move is!
Day trading differs from Swing trading in that the time frame for Swing trading will differ much from the volatility of a single session of a day trade. It is very different in that the day trade is extremely short in the life of a stock and the trader. It is like running a marathon with the least oxygen available!
Swing trading is less volatile and if picked correctly can realise a much higher return over the span of the trade, however the day trade introduces excitement and the prompt realisation of quick profits.
So what does one need to basically look for that illusive day trade and how can one pick a stock that will be volatile enough to realise profits from the swing of half a cent?
The majority of the best day trades are found in speculative stocks and stocks of low price range. After all we are looking at small movements with least outlay so we would be unlikely to day trade a stock in the price range of a few dollars because the return would be very limited and very small.
For example, a 1 cent return on a $5 share which equates to 0.2% return is not the same as a 1 cent return on a 10 cent share which equates to a 10% return, hence the capital outlay plays quite a large part in this.
I use 2 forms of scans. The first using incrediblecharts and the second using my protrader 2 platform once the market is open and within each hour during the day.
Using incrediblecharts scan capabilities I search for the following criteria as a matter of preference:
1. Scan the market based on a price range of interest, say 1 cent to 1 dollar.
2. Look for Volume spikes over the last day trading exceeding double the 50 day Volume EMA.
3. Look for the RSI 70/30 signal crossover over the last 5 trading days indicating a bullish signal.
4. I look for MACD (26,12,9) Signal crossover over the last 5 trading days indicating a bullish signal. MACD is constructed by default of 2 moving averages long period 26, short period 12 and a signal line.
Using protrader 2, the market watch screen provides timely and current scans. The most important part of the screen is the “Gains in percentage” then once the screen is loaded, I look for traded volumes and trade quantities. Volume alone is NOT indicative and one needs to know how many executions resulted for the relevant total volume.