With over 7,000 stocks in the market, how does one narrow his list of stocks to trade? A successful trader understands what his strengths and weaknesses are. Also, he chooses stocks that support these strengths, giving him better chance at profit. In this article, we will detail the best stocks to trade for different investment strategies or personalities.
For example, low priced names have inherently less volatility than high priced names. Some traders need low volatility to live, others require abnormal movement. Liquidity is also paramount. A trader must be in the position with enough size for a trade to be profitable over time. The best ideas cannot generate profits if not properly executed.
High Priced Stocks To Trade
These high priced stocks to trade show ample trading volume and volatility. Additionally, they are stocks on the move. Many of these names have strong narratives- both positive and negative. This brings competing parties to the market. Consequently, the winning side realizes tremendous profits.
O’Reilly Automotive, Inc. (NASDAQ : ORLY) engages in the retail of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. The company began back in the 1950’s and thrived in a number of different market cycles. Some believe that auto parts stores will eventually become obsolete. Investors began to question the future growth limitations of the industry. Also, autonomous vehicles and internet based market places are disruptions to the industry.
Conversely, bulls in the name believe this company will continue to thrive. Trading at over $250, this is a strong stock to trade. It shows average trading volume over 1 million shares per day. This allows traders and investors low risk position management. The firms shows a stable earnings-per-share (EPS) growth of over 20% the past 5 years. This stock to trade allows a trader real profit opportunity on both sides of the market.
Ulta Beauty, Inc (ULTA : NASDAQ) operates as a beauty retailer in the United States. This name is a momentum trader favorite. Its high price tag of over $200 exposes traders to large dollar moves. Brazen traders enjoy an average true range over $6 in this name. Additionally, recent accusations surfaced claiming the company resold used products. The stock sold off before later recovering. This news gives parties a reason to adjust their position, creating volatility and trading opportunities.
Furthermore, savvy traders do due diligence on the name and wait for profitable opportunities. Traders who believe this news is untrue look to buy on weakness and sell during the impending recovery.
Low Priced Stocks To Trade
On the opposite end of the spectrum, traders who need less volatility and more steady moves look to low priced names. Many of these stocks trade massive volume daily and move less than $1 during a session. This gives investors easier risk controls. It also caps the ultimate downside. A $200 stock can go down $200. Conversely, a $3 can only go down $3.
AK Steel Holding Corporation(NYSE : AKS) produces flat-rolled carbon, stainless, and electrical steels, and tubular products in the United States and internationally. The stock trades around $5 and shows eye-popping trading volume of almost 20 million shares daily. Despite its low price, it carries high short interest. Stocks with these characteristics experience more sustained moves as individuals adjust positions.
Also, the Trump Administration recently announced initiatives relating to steel tariffs. The sector saw this as bullish and bid up steel stocks. This scenario is where low priced stocks to trade grant traders large profits. Massive position sizes are traded with little to no slippage, ensuring traders capture the true risk/reward scenario they bet on.
Advanced Micro Devices, Inc (NASDAQ : AMD) operates as a semiconductor company worldwide. This stock to traded dates back to the 1960’s, showing its presence in the industry. It survived many different generations of technology in addition to the dotcom bubble. The company found itself the subject of headlines. A sector rival experienced negative news, causing AMD to pop. As these headlines are digested, profitable opportunities are plentiful.
Furthermore, this stock trades insane volume over 50 million shares daily. This stock to trade offers exposure to the red hot semiconductor space. However, this name is extremely safe to trade relative to execution risk. The same cannot be said for other semiconductor companies. This stock to trade offers safe exposure for many different trading styles.
Identifying Stocks To Trade
Before a trader selects which part of the market she wishes to pursue, she must identify a trading style. This style should be agreeable to one’s personality. A trader may have the right call, but fear the wild moves of a name. Thus profits are missed. However, this is a weak excuse as we proved.
What if a trader is bullish on a high flying, expensive semiconductor, but does not feel comfortable trading stocks with $.50 spreads? He looks to less expensive similar industry stocks for a trade. This is known as a “sympathy play” among traders. It explains the phenomenon of a stock rises or falling based on the movements of another.
Additionally, smart traders identify when an industry peer is trading independently of others. This is called “relative strength/weakness”. This action creates sustained moves in either direction as more investors take note. These stocks to trade makes sense in theory. If company A takes market share from company B, investors will buy A and sell B. These patterns repeat over time. Consequently, relative strength/weakness is a proven profitable method of identifying stocks to trade.
In conclusion, identifying stocks to trade relies heavily on the psychology of the trader. Traders uncomfortable with high volatility should shy away form expensive names. Conversely, momentum traders avoid low priced range bound stocks. No right way of stock picking exists. It is paramount that a trader understand his own strategy.
Finally, creativity is a must in this endeavor. The opportunity for profit is enormous and traders limit themselves only in their own minds. If the behavior of the stock does not agree with one’s personality, the trader must be creative and stick with his strategy. With so many stocks to trade, there is bound to be an option befitting to a traders style. Breaking trading rules is a common mistake for new trades, costing them dear profits.