Stock Analysis and Day Trading

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Stock Analysis and Day Trading

Developing your day trading system requires a great deal of information. Especially when too actually buy and sell the stocks you have performed your due diligence on.

When to Buy, and When to Sell Stocks
Ideal stocks for day trading have good liquidity and volatility. For day trading, a stock needs to have good liquidity so that you can enter and exit the stock at a good price. You will quickly become familiar with the terms tight spreads and low slippage, which mean that stock value doesn’t move so much that you’re going to loose a lot of money suddenly.

After you have determined the kind of stock you are looking for, you need to identify entry points. There are three major tools to help you:

Intraday Candlestick Charts - Candles provide a raw analysis of price action.

Level II Quotes/ECN - Level II and ECN provide a look at orders as they happen.

Real-Time News Service – A change in the News can move stocks.

There are certain patterns to look for using these tools:

A volume spike

Prior support at the price level, and

Level II situation showing open orders and order sizes

Once you’ve identified the company you want to invest in, you need to spot the right time to make your move. The ‘right time’ is a concept that depends on the style of trading you decide to use. There are three main trading styles and, as a beginner, you are likely to find one or another that suits you.

Scalping Stocks:
This is one of the most popular strategies. As a day trader, you would buy stock that you have identified as potentially good for the day. You would then proceed to sell the stock almost as soon as it becomes profitable for you to do so.

Fading Stocks:
This involves shorting stocks after a rapid jump in price. You assume that the stocks you’ve identified are over priced, that early buyers are ready to take a profit, and existing buyers are panicking. Everyone is thinking, sell, and the price will drop. The price target if your strategy is fading: when buyers begin to step in again.

Daily Pivots:
Buy the stock at the lowest price of the day (LOD) and aim to sell it at the high of the day (HOD). To succeed with this strategy you must be well versed in the company trends.

Stock Momentum :
Trading on news releases can be a very effective move. Another momentum trading method revolves around high volume. Your target for buying is when the price is down before the news release or when it’s down in keeping with the general trend pattern.

When you are a day trader, your exist strategies for a stock will revolve around the point at which there is evidence of a decreased interest in the stock indicated by the Level II/ECN and the volume of trades.

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