Finding the best stocks to trade
The equity trader focuses only on the stocks that can increase their odds of making a profit. These stocks must have healthy trading liquidity and a large investor following. With high volumes, it allows the trader to get their buy or sell orders filled quickly. The spread on the bid offer spread are narrow. The danger for traders is that stock prices can either gap down or up significantly if there is low trading volume on the stock. The price that their orders get filled could be far off from where the market price is.
Essential for the individual looking to profit from stock trading is looking for stocks with high price volatility. Huge price movements enable the quick acting trader to profit from the volatility. It gives opportunities for them to establish a slew of entry and exit points for the stock. A stagnant share price means there are very few opportunities to profit from the huge price swings. The opportunity costs for the stock trader would be high holding on to a stock with low price volatility.
In addition to elevated price volatility, the ideal trading stocks are those that are missed-priced. Once the equity markets realize that these shares are also over-priced or under-priced, these prices can quickly correct by reverting back more towards its intrinsic value. The stock trader wants to exploit these opportunities before the markets recognize these pricing discrepancies.