Active stocks have a lot of buyers. There will be reasons for their interest, That’s why you need to know more.
The number of shares traded alone is a poor indicator to buy. Shares like Apple Inc. (AAPL) and Ford Motor Company (F) will always feature in any most traded shares list because of the sheer number of shares available.
Where Do You Start?
You need to know trading volumes and prices. This means reading graphs on a stock scanner. Start with a free scanner if you are researching and not ready to invest just yet.
The Yahoo stock scanner screenshot above gives you the basics of share price and trading volumes on the same graph. It tells you the average volume and daily prices. If you click on the Statistics tab, you find details of the number of shares that exist and the number that are being actively traded.
Trading volumes are important because you don’t want to get stuck with shares that nobody is buying.
Do Your Research
The more you learn the more you realize there is yet to learn. Time you invest in research is never wasted.
Stock activity is important, but there is a rider. You are looking for unusual stock activity. This will happen when there is news of some kind that affects a company’s prospects.
Companies that have relatively low numbers of tradeable shares will be more likely to have large share price movements. These companies are less likely to be held by insurance companies and other large investors that rarely buy or sell their holdings.
Look for stocks that have risen by at least 10% because of some news from a reputable source. Be wary of following rumors on Twitter or similar platforms. These ‘pump and dump’ schemes are often initiated by unscrupulous investors who want to inflate the value of their own shares before they sell them.
Look for heavy after-hours trading as a clue to a possible rise the next day.
Remember share price charts are a record of PAST trading. They are not a good guide regarding future price movements.
Your research will often flag up penny stocks with unusually high trading volumes and rising prices. However, if the price movement is based on one person buying 10,000 shares the risk of holding those shares and not being able to sell them again is too high. When the number of shares traded is low, your risk increases. Avoid.
Never sign up for any of the many day-trading scams. You will lose your money.
You can make money by trading the most active stocks without sitting all day at a desk with a bank of computer monitors – But you will catch more opportunities if you are available to trade. If you are only able to trade before leaving for work in the mornings, you risk missing many buying opportunities, as well as being caught holding shares that market sentiment has turned against.
Short-term trading and day-trading are high-risk activities, so you need to reduce the risks by getting up-to-date information. You have to pay for up-to-the-minute prices. Free services might offer prices that are 15 minutes behind real-time prices. Even a 5-minute delay could cost you dearly when you are trading in a volatile stock.
Free services are fine as long as you are only investing pretend money. Before you start buying real shares, you need to invest in specialist tools and newsletters to find the most active stocks that you can trade profitably.
A lot of action starts before the markets open, or very early in the trading day. You need a stock analysis service that will alert you when a particular stock starts showing signs of major gains. That way you can get in early, and get out with a profit the same day.
Could You Start Today?
Yes, just follow these steps:
1. Work out how much risk you are happy with
2. Research – Understand charting, share volumes, and share price charts
3. Try virtual trading
4. Register for a real-time data and share dealing service –Check out share dealing services’ apps
5. Decide how much you can comfortably afford to use to buy shares – You might lose it all
6. Sign up for a reputable, paid share tips service
7. Be available to MAKE the trades you find
Published by INDER SINGH Chauhan