How to Find the Best Liquid Stocks to Trade Every Day!

Something you’ll constantly hear is only trade liquid stocks. What does that mean, and why is it important? That’s in today’s article.

So, today, we’re gonna talk about liquidity. What is that? Why does it matter? And why should you be concerned with it? Okay.

So, you’ll hear it all the time, “Only trade liquid stocks. Only trade liquid stocks.” I’m gonna give ya a couple criteria that you should look for, and these are criteria you should be plugging in to your scanners, your screeners.

Hopefully, you’re using StocksToTrade. Obviously, I’m a little biased, but maybe you’re using a web app, or maybe you’re using some other application to do this. These are all parameters you should be plugging in. So, when it comes to day trading particularly, that’s what I’m gonna focus on today.

Wait, if you’re talking about swing trading or investing, you can lower these levels a little bit, but when it comes to day trading, you never wanna look at a stock that isn’t trading a million shares a day or projected to trade a million shares a day.

What do I mean by “projected”?

If you’re looking at a stock in pre-market, so, say it’s 9:15, and this stock is up big, it has news, and you’re interested in it, but if it’s only traded a thousand shares, maybe it’s even into the market open, and the stock has only traded 20,000 shares, 30,000 shares, it’s very unlikely that this stock is going to hit your volume forecast of a million shares a day.

So, what you wanna be doing in pre-market, and you can manipulate this number as you move through pre-market, so, pre-market for NASDAQs and NYSEs start at 4 a.m.

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You can start looking at stocks then, probably not gonna be a whole lot moving, but come 7 a.m., 8 a.m., this is what I want you plugging in your screeners, 50,000 shares.

If it’s not trading that, I don’t care what the news is, I don’t care what the catalyst is, it’s not on your radar yet.

Then, as you move into the market open, after 9 a.m., into the market open, you should really be at that point where it’s a million shares traded a day already.

I know that sounds like a lot, but as a newer or intermediate trader, you only wanna be trading the stocks that have the biggest potential to move. You got a small account, you’re trying to grow it, you’re trading illiquid stocks, you’re gonna get in a tough spot.

Now, maybe some days, there is no big mover that’s traded a million shares at the market open. Good. Okay?

You’re probably under the PDT, you’ve probably got other commitments, day job, school, family, whatever. If you don’t have that really liquid stock at or around the market open, if there’s nothing on your scans, it’s a good day to take care of other priorities or save those day trades.

Now, why? Why is this so important?

The biggest reason is what makes stocks move, why do stocks make the big gains? It is because it’s a marketplace. It’s because there’s more buyers than sellers.

We’re talking about going long in this particular instance. You want that mania. I reference this all the time, but back to every Wall Street video you’ll see of the guys with the multi-colored jackets yelling, screaming, throwing the tickets.

That’s what you want in day trading because more buying creates more buying creates those big moves to the upside. So, that’s why you care about liquidity. More eyes, more buyers, more traders heightens the potential that this stock’s gonna spike at the open, gonna spike midday, and then maybe spike into the closing, maybe even be a multi-day mover. More buyers means higher odds of a continued move.

Low volume. If you’ve tried buying morning spikers, and maybe you tried it a few times, and none of ’em worked for ya, go back and look at what the volume was.

Because if the volume’s not there to support that morning spiker, you’re probably gonna buy one of those ones that fails. That’s why liquidity is so important and volume is so important.

The other reason, and this is the last point, keep in mind, if you’re in a very illiquid stock, you can have real problems getting out. It’s called slippage. Okay?

If this is an illiquid stock with the wide bid and ask, and these are things we talk about in a lot of videos if I’m throwing jargon at ya, but if you got a wide spread on a stock that’s illiquid, you may wanna sell on the ask, but you can’t because there’s no bidders that are willing to come up and take your offer.

So, you gotta sell on the bid, and if that’s 50 cents a share lower than what you’re in at, think about what happened to your profits. You could be up on this position nicely, but if it’s illiquid, you can’t get out.

If you can’t sell, if you can’t get a buyer to buy your shares, you gotta start dropping your price, and I call that you’re basically trading against yourself because you gotta lower that price, ’cause you wanna take profits, you wanna get out, maybe you wanna buy another stock, maybe you wanna be in cash for the night.

I’ve been there. It stinks. It’s a bad position to be up nicely but not able to get out. So, keep that in mind.

Write down these numbers, put ’em in your scanners, and please, the one big thing, avoid stocks that don’t have the volume forecast to potentially trade a million shares a day.

Thanks a lot, everyone, and we’ll see you in the next article.

Beer buff. Incurable zombie guru. Amateur introvert. Avid writer. Typical bacon junkie. Trader.