I know many day traders who spend hours looking for the perfect stock to trade, or a stock that is poised to breakout and make them a fortune.These are inefficient ways to trade the stock market. Moves happen everyday, and if we know how to capture that movement it doesn’t matter what we trade. That said, we may as well play stocks that are moving a lot, because finding “stocks on the move” doesn’t take as much research as you think.
If you are looking to day trade in stocks, keep it simple. Day traders often look for stocks poised to move, instead of stocks which are already moving. Possibly this is because they feel they have missed out some movement already. Who cares! Profits are profits. Things in motion tend to stay in motion, things at rest tend to stay at rest – at least in the short-term.
Here is a simple method for finding the most volatile stocks using a high volatility stock screen–which are almost guaranteed to significantly move each day:
Run the high volatility stock screen once a week for stocks that have an average daily range (intra-day high minus intra-day low) over 5% (averaged over at each 50 days). Set a price filter and volume filter.
For this particular strategy I only trade stocks with over 2 million average (30 days) volume and actually generally trade stocks that have a 6%+ average daily range. You may wish to use a higher or lower average volume, or vary the daily average range.
You may then additionally filter by exchange to narrow the result more to your liking.
Very simple screen! Presto, you have stocks which have a tendency to move a large amount each day AFTER the open! Run this screen once a week and pick the best 2-5 stocks, and day trade those all week. Since you will generally trade the same stocks for several days you can run statistics on them and get a better feel for how they are likely to move–keep in mind knowing how much these stocks generally move in a day is very valuable information.
One note about the price filter – day traders often gravitate to very cheap stocks or relatively expensive stocks. I generally stay away from both these. Run your screen for stocks in the $10 to $100 area. If you get too many results, narrow it to a price range you prefer. Ideally find about 3 stocks you really like–more than this and you may miss opportunities because you are watching too many things. Less than this and you may have too many quiet times during the day. Keep it between 2 and 5 stocks.
Day trading requires a sound method of attack. But now you will have a handful of stocks you know will move so you can put your methods to more fruitful use. We don’t know the direction these stocks will go on a particular day, we only know that they move a lot. So be nimble and prey on the volatility. Have a trending strategy and a ranging strategy in order to take advantage of the movements which occurs.
Get too many search results? Increase the filter criteria. Volume is good, so increase the average volume, or increase the average daily percent (the higher the better in my opinion). You can also narrow the price range of the stock screen.
Too few results? Relax the criteria. Try a different price first, then slightly reduce the volume or the average daily range. Still no hits? Weird, but if that is the case, wait for good stocks to come up on the list. If the screen receives no hits, it is very likely the market is quite quiet overall. We don’t want to sacrifice too much volume or trade stocks which won’t move.
Where to Run Your High Volatility Stock Screen to Find the Most Volatile Stocks
If you only want a handful of stocks you can use the free version (provides up to 5 results per screen) of the screener at http://www.stockfetcher.com/. Here is the Stock Fetcher screen that I use:
show stocks where the average day range(100) is above 5%
and Price is between $10 and $100
and Average volume(30) is greater than 4000000
and exchange is not amex
add column Average Volume(30)
add column Average Day Range (30)
This can be tweaked to your liking. I have excluded Amex to avoid leveraged etfs being included in the results. Those move a lot everyday, but I prefer looking at stocks which are moving a lot. You can use “and exchange is nyse” to get stocks only listed on NYSE, or “and exchange is nasdaq” for only nasdaq stocks, etc.
You can sort the result columns in different ways, thus providing you with more than five stocks using the free version on Stock Fetcher (you will still only see 5 stocks at a time). I usually sort the Average Day Range column from high to low, and trade the most volatile stocks.
High Volatility Stock Screen – Final Word
This high volatility stock screen is great for finding stocks that move a lot during the day, and also have adequate volume for day trading. If you are new to day trading or have a tendency to get anxious when trading, don’t use this high volatility stock screen, and avoid trading the most volatile stocks. These stocks move very quickly so you need to be on your toes and on top of your game. Knowing which stocks to trade is only a small part of the battle. You then need to find a way to enter and exit with a profit, in a very fast and volatile stock.
The Trading Tutorials page on VantagePointTrading.com has many articles which will help in building a trading plan and implementing strategies. The Top Trending Stocks page also provides access to the top trending stocks each day (not necessarily the most volatile though).
Cory Mitchell, CMT