Achieving a high daily win rate is the “Holy Grail” for day traders, and professional traders consistently achieve remarkable success. But what sets them apart? This article uncovers the three key factors behind their impressive win rates and reveals the strategic advantage of "Stocks in Play" for day traders.

Pattern Recognition and Risk Assessment

Successful day traders excel in pattern recognition, accurately assessing risk versus reward and knowing what the probability of success certain trade setups offer. This skill enables them to identify profitable setups and make informed trading decisions based on market conditions, giving them a significant edge. Focusing on Stocks in Play is one of the easiest ways for a trader to narrow their focus and improve their hit rate. With a better hit rate, comes more profits.

Identifying the Right Stocks: Stocks in Play

Within the vast universe of stocks, it can be challenging to know what stocks to focus on. What we do in the Trader’s Thinktank is focus on a specific category known as "Stocks in Play." These stocks possess distinct characteristics that provide traders with a competitive advantage. Stocks in Play exhibit higher-than-normal relative volume, resulting in several key benefits:

A) Increased Volume and Liquidity for Enhanced Risk Management: Abundant volume in Stocks in Play boosts liquidity, allowing traders to minimize risk during position entry and exit. With ample liquidity, traders can execute trades with reduced slippage and tighter spreads, optimizing profit potential. This is especially important if you trade options, where liquidity is usually thinner.

B) Volatility Creates Lucrative Opportunities: Stocks in Play exhibit heightened volatility, generating frequent outsized price swings and intraday fluctuations. This volatility presents day traders with ample opportunities for profitable trades, catering to both bullish and bearish strategies. Generally speaking, a Stock in Play can give a 2-3x average true range (ATR) move.

C) Overwhelming Algorithmic Trading Programs: The substantial order flow in Stocks in Play overwhelms algorithmic trading programs, resulting in cleaner and more predictable price movements. By avoiding the influence of automated algorithms, day traders can navigate the market with increased confidence and accuracy. By focusing on Stocks in Play, you can have a greater reliance on the technical patterns that develop in these names. Objectively speaking, Stocks in Play will always trade more technically.

Characteristics of Stocks in Play

Stocks in Play possess two crucial characteristics that day traders seek:

A) Volatility: Unlike most company stocks that move slowly and infrequently, Stocks in Play exhibit the necessary volatility to generate profitable intraday trading opportunities. Their price movements are influenced by multiple factors, making them attractive to day traders. As mentioned previously, it is not uncommon for a Stock in Play to give a move that is 2-3x its normal ATR. That means that if stock XYZ normally moves 5 points, when it is in play it can go 10-15 points!

B) Volume and Liquidity: The key characteristic of a Stock in Play is volume. A Stock in Play will always trade with a minimum of 2-3x its normal volume. To spot this in real-time, use an RVOL tool. Liquidity is also paramount for day traders, ensuring swift execution of trades. Stocks in Play provide elevated liquidity, enabling traders to enter and exit positions without delays or unfavorable slippage. Minimum volume thresholds, such as 10,000,000 shares traded per day, serve as indicators of sufficient liquidity. If trading options, check for a bid-ask spread that is less than 10%.

how to find Stocks in Play

Identifying Stocks in Play requires diligent research and access to trustworthy resources. Here are some methods employed by day traders:

1. Trader’s Thinktank: Every day we outline the stocks in play that are worth watching and post them in our Premarket Prep notes. This is by far the easiest way to find Stocks in Play. Signup today by clicking here. Our moderators stay on top of breaking news through our proprietary sources to share with the team.

2. Broker Platforms: Many broker platforms offer sections dedicated to trending stocks, providing lists of stocks that are currently trending or have shown significant movement during the day.

3. Stock Screening Tools: Online platforms like Finviz provide free stock screening tools that help traders identify rapidly moving and breakout stocks, both pre-market and intraday.

4. Financial Websites: Reputable news sites such as Bloomberg and Reuters, promptly report major company news and market developments. Platforms like Stocktwits, Twitter, and websites like Seeking Alpha offer real-time news and insights relevant to day traders.

how to trade Stocks in Play

Day traders employ various strategies when trading Stocks in Play. As mentioned previously, Stocks in Play trade technically so a wide variety of setups and strategies can be used. One setup that is commonly used on Stocks in Play is known as the Opening Range Breakout (ORB). If you want to learn more about the ORB setup and other setups to use with Stocks in Play, signup for our Options Mastery Course.

Stocks in Play serve as a powerful tool in the arsenal of successful day traders. By focusing on stocks with increased order flow, volume, liquidity, and volatility, day traders improve their edge in capturing profitable opportunities. The key component of Developing a skill set, employing pattern recognition, and identifying the right stocks are all vital components of a winning day trading strategy. Remember, while Stocks in Play present exciting prospects, traders should combine their analysis with risk management techniques to navigate the markets.