All about investment

By Matthew Mc Dermott

You may day trade small share size amounts for whatever reason. It could be that you are starting out in day trading, you have to reduce your trading size for any number of reasons (e.g. trying to break out of a slump so you want to get some "small winners under your belt"), or your money management rules state that you must trade a smaller share size for now. If you are in this position, yet you still want to have respectable profit potential, consider this day trading stock tip to help you focus your time on those symbols with sufficient "intraday range."

In day trading, the "intraday range" is defined as the day's High Price minus the day's Low Price. This value will tell you much about the stock's movement during the day and how market participants (including fellow day traders) perceived the stock's value for that particular market session. It also shows you how much profit potential you "theoretically" could have made if you had bought at the day's Low Price and then sold it at the day's High Price; the inverse would be true for shorting a stock.

Since you do not know how much of a range any particular stock will have tomorrow, take a look at the stock's "character" to determine if it should be a symbol you add to your "watch list" the next day. Many software packages offer a value for the 20-Day "Average Daily Range" which takes the previous 20 intraday range values and averages them. You may get this value from other websites and add-on software packages if necessary.

Assuming you already filtered your universe of possible day trading stock candidates by price, minimum (or, in some cases, maximum) Average Daily Volume, exchange on which the symbol is traded, and any other filtering methods you use, get the 20-Day Average Daily Range values for the symbols which are still in your universe of possible day trading candidates. For each symbol, take the 20-Day Average Daily Range and divide it by the previous day's Closing Price. Convert this value into a percentage.

Then do the same calculation with the symbol's corresponding sector index (or even a broader index like the S&P 500). Those symbols with the largest percentages, especially those which have larger values than the sector/broader index, will be the symbols with possible (although never guaranteed) chances of having significant intraday range the next day. If you employ intraday trend trading strategies using smaller share sizes this could be a useful tool to help you narrow your focus.

Of course, you are welcome to use another time frame instead of the 20-Day Average Daily Range. Also, be careful of intraday "air pockets" where you may not be able to get out of a trade at the price(s) you wish due to a lack of liquidity at the time you wish to exit your position. Day trading stocks with significant intraday volatility can result in significant slippage and impact to your trading accounts, so be disciplined if you use this suggestion. Finally, all standard trading/investing disclaimers, including the one at DayTradingStockTip.com, apply here.