As already said, each trader has his own style ( or should have ). So it's up to him, what he wants to trade. However, there are some characteristics inherent in less volatile stocks, which may give the trader ( not the speculator ) some odds over the long run : Trading highly volatile stocks demand much stricter risk control than average or below average beta stocks. ( Unless you're a gambler ). The only way to implement this risk-control without getting whiggled out of your position dozends of times, is to reduce your positionsize and use wider stops. The necessary, low-risk, volatility adjusted positionsize for such stocks is sometimes much smaller than most daytraders would expect. Sometimes, depending on the traded stock, account size and %risk model, a trader will end up with odd lots. Although a trader might have larger point gains per share in high beta stocks, this effect is partially offset by the smaller position size. Low beta, highly liquid issues offer 1.the possibility to "wield a larger sword" - meaning much larger positions, without violating %risk model as compared to high beta stocks and without setting stops so tight, that the trade inevitably gets stopped out several times before a profit can be realized. 2. the possibility to take on larger positionsizes without more risk as with high beta stocks offers the advantage of implementing scale in / out strategies ( see praetorian2 posts , although I admit, he's not really in the most liquid stocks most of the time ;-) ) 3. highly liquid, below average beta stocks offer, most of the time, more "predictable" price patterns and do react more favourably to many standard technical indicators. 4. Many low beta stocks ( although you'll find them also among NASDAQ stocks ) are traded at the NYSE - a market which is considered to be "fair" for the trader, at least compared to the mumbo-jumbo poker games played in many Nasdaq names by MM's. 5. Evtl. a trader has less stress by avoiding the daily emotion-rollercoaster inherent in trading high beta stocks. As a private trader, one should always strive to enhance his odds as far as possible, thereby he has to admit towards himself, that his options to do so are rather limited. But certainly, he could start with avoiding all of those and conditions which raise the barriers for him. Live is hard enough - so one shouldn't try to make it even harder. Of course, if one feels enjoyed by wildly oscillating ups & downs in his trading account ( equity curve looking similar to the charts of those high beta stocks ) - than this is the way to go. If you're in for consistent money-making, select your trading vehicle very carefully. There's no way to "control" the market ( unless you're in with real size on thinly traded stocks ) Just my HO
Hello I was wondering what is the right way ti find those stocks that PRIVATEER and the rest of you mention, as I have tried some scanners but heh... not much success. And BTW, what is that BETA? THX Alex
Privateer makes perfect sense. I currently trade highly liquid NYSE stocks, which are not volatile. But the lack of volatility allows me to buy more shares. e.g. 1000 shares of NEM producing 0.2 points is the same profit as 200 shares of some volatile Nasdaq stock producing a full point. Also, my success rate is higher on NYSE because the lower volatility results in fewer stop outs. So I will take 0.2 points on a low beta stock anyday over point gains on a Nasdaq stock.
Alex : Beta Beta is a measure of a company's common stock price volatility relative to the market. Example : here's how Marketguide calculates the beta for the 9000+ stocks in its database : "The Market Guide Beta is the slope of the 60 month regression line of the percentage price change of the stock relative to the percentage price change of the S&P 500. Beta values are not calculated if less than 24 months of pricing is available." If the markets beta is set at 0, than Stocks with a greater volatility relative to the benchmark have a beta > 0 and lower volatile ones a beta < 0. High beta issues are stocks with a beta of, say 2 - 3 or more - their volatilty is 2 - 3 times higher than the S&P 500 volatility. Of course, volatility is always changing, for the market as well as for the single stock - but beta measures a relativity between the market and the single stock - so a 2 beta stock's volatilty is always 2 times the one of the arket - regardless how high or low the absolute volatility of the market or the stock is. Low beta issues have usually beta's of 0.5 or even lower. Please notice, that beta is not a measurement of intraday volatilit, usually calculated on longer time frames. However, if you search for highly active , high beta stocks for daytrading, scan for stocks with a beta > 2 and a daily tradingrange of at least x points. To narrow the search further, one could limit the closing price to say min. 10 $ max. 40 $, but the average daily range over the last 10 trading days should be at least 2 - 3 $ and a daily tradingvolume of min. 500 K. shares and a max. of 8 Mio shares. Coupled with a beta of > 2 , you'll surely get some great, nervwrecking daytrading candidates. For low beta, reverse the scheme.
I guess my point is, if you can consistently trade for a profit. Why not make 5% a day on a volatile stock rather than 2% a day on nonvolatile stocks. The counter to this point is that your drawdown will be larger on more volatile stocks. Perhaps the comment that it doesn't matter what type of stock you trade if you have unlimited capital is true. Trading a larger share amount of a nonvolatile stock is equivilent to trading a smaller share amount of a volatile stock. Trading 1k shares of a stock with a Beta of 1 is the same as trading 500 shares of a stock with a Beta of 2. So perhaps trading volatile stocks is just another way to leverage your capital. If you don't need leverage, then maybe you are just as well off trading more shares of a less volatile stock. So i guess the answer to the question, whether to trade volatile or nonvolatile stocks is. Depends on whether you need extra leverage (lack of trading capital). And if you can successfully manage your drawdown on trading high beta stocks.
Silk, I think it's more an issue of liquidity for me. I refuse to trade most nasdaq names just b/c you can't move more than 5k shares in a hurry. I know that on the nyse, I can dump 5k at market and let the specialist take his 20c from me. At least I'm out. On the nasdaq, when a stock runs away from you, every mm drops down fast, and the ones that are left are only bidding for 100 shares. You're screwed. There aren't very many volatile issues on the nyse. I'm not adverse to making 5-10 pt gains in something like nvr, but the spread is half a point, and I rarely take more than a k in it as a result. I am pretty content with how much I make now anyway, to trade nas stocks, I would have to relearn a lot of things, and I still don't think I'd be as successful.
Silk, interesting topic. I have been to both sides (trading ARBA, JNPR, CIEN solely for months, and trading slow stocks like DTHK, and some $5ish stocks as well) here is what I see: 1. Fast stocks: The good news is, they move like you said (I miss SDLI at 300 level, moved 20 to 30 pts daily, 1 to 2pt stops are ok.) The bad news is, too much daytrading interests, with lots of pros in them, and they don't follow any index/mkt indicator, they lead the market and very stressful to trade, put you under pressure that you intend to make more mistakes.(click the wrong button, hesitate to cut lost etc.) if you are not fast enough (software, connection, execution skills, cutting losses etc), you are the one to hold the bags... even with 1 second lagging on the data feed... you got the picture.- I think this is the main reason lots of people don't like to trade the fast ones. 2. Slow stocks Good news is, its slow, give you lots of time to think and cut your lost. Bad news is, its boring, you need SIZE to pull in some serious money, and if you in and out too many times, the commissions will be... well you know. So the point is: Trading fast stocks is just another style/way like trading slow ones which depends on the traders skill/personality and capital. Just my 2 cents. btw, candletrader, from what I read on this board, you must be a very good trader, if you could drop by our room sometimes, we could learn some plays from you. http://clubs.yahoo.com/clubs/elitetradinginaction me and Praetorian2 trade there in real time daily. I trade at open for gappers (most naz) and P2 likes NYSE gnp with size.
Hi Silk - you say trading 1K of 1 beta stock is similar to trading 500 shares of a 2 beta stock, so all comes down to higher leverage - this is a very simplistic view. high beta stocks are high beta for reasons - reasons, that make them less "predictable" and higher risk to trade. The amount of risk inherent in 1 beta stock is not 50% of that of 2 beta stock and vice versa. High beta is the result of a comparison between stock's volatility relative to the market over a longer period of time. It doesn't say anything about the intraday-volatility something a daytrader is maybe interested in. Take Dell i.e. it's a high betastock, but intraday-movements are, compared to HGSI or PDLI of non interest for many daytraders who like to see large moves . Even in it's better days, Dell almost never experienced the huge intraday volatility as a YHOO or AMCC. True, many high beta stocks have also very high ST volatility ( not to say they show erratic moves from one extreme to another ) and inconsistent ranges of daily ATR. This has to do with the usual bursts of demand and supply on a comparably low free float. One of the easest ways to find out, whether a stock is risky or not for trading is measurement by it's 10 day ATR volatility - changes in the daily trading range over a period of 10 days. ( Using BB's for example ) If this ATR expands & contracts by a wide range from day to day, it's almost impossible to place a logical Stop outside of the daily noise for ST swingtrader. At every given day, the stock can break out of the prior days daily range with out any sign of warning, hitting your stop and contracts the other day. If you apply a volatility based %risk money-managementsystem for a 10K account with 2% risk on equity on such a stock, and you place a stop at, say 2 x ATR of the last 10 days, this stop is so far away from your entry, that you must look for at least a 4 times multiple reward or decrease your position to odd-lot size in order to withstand just the swings which can occure before you'll make a profit. Always provided, you are able to pick a good entry. On the other hand, you might have a low beta stock, with a very constant, not too large ATR and calm swings week over week. For this stock, the volatility based %risk model might allow you to make full use of your margin without increasing your risk substantially. When applying such a modell on a variety of stocks ( say the S&P 500 stocks ) you'll see, that the risk-reward ratios for highly volatile stocks can be somewhat higher as for low beta, low ATR stocks, but, when you take the optimal positionsize into account, the total reward in $ is much higher for the low-beta issues, while the risk keeps the same ( in essence risk is even lower, since stops can be calculated with more accuracy ). So it's not just a question of trading 50% of the size when trading 2 beta stocks compared to 1 beta stocks in order to be on the safe side. It's mainly a matter of the stocks trading characteristics. If it changes too often, a trader get's simply trapped on the wrong foot too ften - meaning he's loosing money. I think, for making money consistently, you need to trade a market which allows this approach by not inheriting too much surprises. May sound boaring, but hey, what's boaring about making money ?
Hey its not boring Privateer, keep 'em coming! I "absorbed" your previous posts but would still like you to give me like at least 3 stocks that fit to your last post' description so I can see what you are talking about. What I found is this (Ensign weekly charts): WM BMET CMX GSB All stocks that exibit similar long term uptrend which has been broken for the last couple of weeks. Also, I noticed that they are showing increased volatility lately. I haven't gone daily with them but will do so later tonight. My plays in the next few weeks will (unless you guys prove me wrong he he) be theese : AA AMD BMET CCE CMX GSP HAL MCD NEM SEBL T WM The way I see it, MOST of them are going down or at least sideways in this market. As I said I still havent finished my analisys so I will probably edit this post but just wanted to see if im at least on the right track! Good trading all! Alex
OK Neo, here we go : Some long candidates I'm following for multiday swing since a while ( not daytrading ) ! buy the dips, in most cases simply MACD crossover or break upside through 50 day ema. Nothing spectacular. FHCC NDN KNSY SCRI RBNC DME FMBI KOSP MCK CBSS WBST DRS FLIR MMSI MIM VISG BBI DYII For Multiweek swing-trading ( buy weakness - sell strength ) SCOR UNH WBST WMT FNM ENZN For daytrading low risk one might consider MAT CMX GIS CAG Just to name a few.But please - do your own analysis and don't just jump on these stocks because someone posted them here. regards