How are you supposed to know when to buy or sell?
The overall goal of Day Trading is to exploit small movements in individual assets. The first big step towards this goal is knowing what to buy and when to buy it.
Looking at the liquidity, volatility and Trading Volume of an asset will help you asses if a trade is both profitable and right for you. Below you will see descriptions of what these things are, and learn how they can lead you to success.
The first thing on the list to look at is the Liquidity of the asset.
Liquidity is what will allow you to enter and exit the trade at a favorable price.
Two things to note when assessing Liquidity are Spread. Liquidity is the difference between bid and ask. Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed. You want to look for a tight spread and a low slippage.
Volatility is The next thing you will want to take into consideration when looking what to buy and sell.
The volatility will help you know when to buy. It gives information on the expected price range. When Day Trading, a larger range in price will mean greater volatility. This will result in either greater profit or greater loss.
Don’t forget to look at the Trading volume.
The trading volume is what tells us how many times a certain stock has been bought and sold. Volume is measured over a specific amount of time.
If the trading volume is high this means a stock has a lot of interest. An increase in volume it is usually a sign of a price jump. After looking for this dumb you can better asses your trade.