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Ph.D Physics University of Michigan
  • Highly profitable stocks for day trading 0 comments
    Mar 28, 2011 8:52 AM | about stocks: AMSC, DBLE, DTLK, MERC, NVAX, QUIK, SCOK, SCSS, DDD, WRLD

    Read my blog at

    http://thequantinvestor.blogspot.com/ 

    Day trading for retail investors is a completely different approach to the stock market than standard investing. For those who choose to venture into this risky but potentially lucrative area, the waters can be turbulent and tumultuous. From increased transaction costs, to quick decisions, and a 9am-4pm job, eyes locked in front of a computer, the task can be both exhilarating and exhausting. There are also things that make it easier than long-term investing, such as not needing to read fundamentals, not caring about balance sheets, and being able to take bad days off and completely remove exposure to the market. I would even argue that many of the high-frequency traders running Wall Street today are glorified day traders...though some might argue with that statement.

     

    In this post I will present to you some straightforward measures that can help you identify some potentially profitably stocks to day trade. I'll do this by proposing three different qualities day traders look for in a stock, and the simple equations you can use to calculate them. Finally I'll present the top 10 stocks that meet these qualifications. I myself am NOT a day trader, therefore I invite comments, criticisms, and feedback from those who do use these methods.

     

    1. High intra-day price variably as a percentage of price.

    This may be the most important quantification. Simply put, if the price doesn't swing significantly within each day, then you can't make money trading it. We can calculate intraday swing easily by taking the difference between the high and low prices of the day, then dividing it by the close.

     

    Price Range = (PriceHigh - PriceLow) / PriceClose.

     

    2. Total money that trades in the stock each day.

    If a stock doesn't have enough liquidity and volume to back it up, then it really doesn't make it easy to get in and out of it. This can make an intended intraday position carry overnight, cause one to sell at prices lower than intended, or not even let you purchase in the first place. The total amount of money that needs to be traded within a day is obviously dependent on the amount you have to buy. $100,000 in money volume may be enough if you only trade in the hundreds of dollars, but $10,000,000 or more in money volume may be necessary if you trade in the tens of thousands. We can calculate approximately by,

     

    Money Traded = PriceClose*Volume.

     

    3. Low Change/Range ratio 

    Finally what we want in a good day trading stock is price action that doesn't really move much overall, just fluctuates up and down. This allows one to trade in and out many times, or take long/short positions in a stock. We can quantify this by the ratio of the price change from day-to-day divided by the price range. The lower this ratio is, the more the price oscillates around a mean.

     

    Price Change / Price Range.


     

    Using these three requirements I have described for you, here are 10 stocks that oscillate over 4% on average, on a daily basis, over the past 10 days. They also trade over $1,000,000 a day and have very low price change/price range ratios.

     

    QUIK

    DBLE

    SCSS

    DTLK

    NVAX

    WRLD

    MERC

    SCOK

    TDSC

    AMSC

     

    As usual, I make no promises as to their performances, and I encourage you to do your own additional research and calculations before investing. But hey, if you can make 4% a day for each day this week, that's not to shabby...

    Stocks: AMSC, DBLE, DTLK, MERC, NVAX, QUIK, SCOK, SCSS, DDD, WRLD
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