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| Seek liquidity at all times. You're trying to get in and out quickly, and you can't do that unless there's a crowd around you. Less liquid stocks also carry higher transaction costs in the form of wider spreads and will defeat your sound risk management. Just 800 stocks comprise the top 10% of all US markets. Under 400 make the Nasdaq list. Below that level (especially on Nasdaq), spreads widen and trading conditions become erratic. 1-3 day swing traders should concentrate on issues with over 250K shares/day. Day traders should avoid stocks that average under 1.5M to 2M shares/day, except for one special condition. High-level shock events turn thin stocks into excellent day trading vehicles for short periods of time. Find shocked stocks that trade over 3-5M shares/day and enjoy the ride. |
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