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A person who knows the tricks when it comes to stock market investing is also well aware of what stock day trading is. Stock day trading, just as the term indicates, is the business of buying and selling of stocks before the end of each trading day. People who take part in this type of trading business must complete all their transactions before the end of each trading day so as to avoid the risk of losing so much money associated with rapid fluctuations in prices.
Stock day trading is a risky business because it can either be extremely profitable, or the other way around. And because of the business’ massive potential for profitability and losses, inexperienced traders are advised to be very cautious before venturing the market. Before engaging in stock day trading, one must look for two things in a stock – liquidity and volatility. Liquidity is what makes it possible for traders to enter and exit a stock at a good price, whereas volatility is what allows investors to make (or lose) big money. Learners of the trade may not be fully aware of this, but an individual can take full advantage of the business by simply being well-informed and prepared before trading stocks.
Stock volatility is what keeps day traders alive. Volatility refers to the measure of the price movement of a stock over a given period of time. Basically, what a person needs to understand here is the fact that no trades can take place if the price range is not profitable. If you want to learn more about this, try to calculate the expected daily range of the stock index that can measure the relative volatility of that particular stock. Simply subtract the “Day’s Low” from the “Day’s High”, divide the result by the “Day’s High” (or “Day’s Low), then multiply it by 100 percent. Generally, the higher the value, the greater the volatility of stock price, and the more likely you are to hit your target.
Daily liquidity, on the other hand, refers to the daily trading volume. As stated previously, liquidity is what makes it possible for traders to enter and exit a stock at a favorable price. This is because high liquidity usually results to close spread between the bids and asked price.
Always consider these things when trading stocks. Decide on stocks with high liquidity and volatility to have better chances for profit.