Trader Mike

I was recently asked about how I determine my “universe” of stocks. That is the stocks that I consider fair game to be traded. I use different filters for swing trading and day trading but they do have similar criteria. In both cases I’m trying to find liquid, volatile stocks. Once the filter’s applied I then look for certain patterns / setups to trade.

For swing trade candidates I use the following criteria in TeleChart:

Price Per Share: about $5 to Max
5 Day Average Volume: 75th percentile & higher (right now that works out to about 466,000 shares per day)
Price Volatility: 25th percentile & higher
Volume (Dollars) 5-Day: 75th percentile & higher

Here’s a shot of the …

Michelle B submits:

LP, in a recent comment to this blog entry, expressed interest in understanding trades based on capitulation. Capitulation means that there are no more sellers for the moment, and the stock price will rebound sharply. The most important aspect is not to confuse capitulation with the low-grade drip, drip of continuing distribution, better known as the infamous falling knife. The two down legs shown in the chart below are distributive in nature, though quite vigorous, while the third and final leg down represented capitulation. Another important aspect is being able to know when they are happening—in my case, it’s my watching the hi/lo ticker that finds these kinds of trades.

I just found a good article discussing the ‘art of buying thinly traded stocks.‘ It has some great information about such stocks, despite the author’s low blow at bloggers. Here’s a snippet (emphasis is mine):

CNBC just did a story on the recent run in Micro Cap stocks. If you’re interested, here’s a link to the story - Small companies, big risks, potential rewards.

As for me, I wouldn’t touch the thinly traded ones with my worst enemy’s money. The volume in these stocks is ridiculously low. For example, the average volume on BSML, which was highlighted on CNBC, is only 12,000 shares. (and of course it more than doubled the average volume within 10 minutes of the report) You could throw a couple of dollars at these stocks and move the market. Ugh! But they work for some people. Different strokes…