How to choose the best stocks to trade in WSDT
Best day trading practices Nov 04, 2019
The most significant part of day trading is knowing the right stock to choose. The right stock is the main target and fulcrum of every good day trading strategy. The amount of gains you’re going to get is directly proportional to the stock you choose.
In WSDT, many traders hit the jackpot with certain stocks. This gave them a winning edge. The strategies, analysis, and trading style all end up with the right stock.
Some competitors in WSDT I made huge losses, some even blew up their account because they picked the wrong stock. Their strategies seemed right, their style was getting on point and their indicators were pointing in a pseudo good direction but their choice of stock crashed everything.
WSDT II is rolling up, and we have put together some of the factors that helped WSDT I winners to choose the right stocks.
What is the right stock?
The right stock is the one that has the potential to earn you profits at a specific time and season on the financial market. Simply put, the right stock is a performing stock.
In light of this, you must also understand that not every tradable stock has this potential.
A stock performing well today might not be doing well in the next 2 weeks or even the next day.
How do you choose the right stock
No constant rule or formula controls the financial market. The market will always keep moving, stock prices will keep changing alongside different parameters, in different directions. This can be an overwhelming task, especially for beginners.
And this is why the issue of choosing the right stock is very crucial. You will need to continually learn, understand and upgrade your skills in this sphere.
Every experienced trader would agree that, in choosing the right stock, one needs to apply different trading strategies and techniques.
The malleability of your stock-choosing strategy and technique shows your level of experience in day trading.
In this article, we are going to show you the factors that most experienced day traders consider when choosing the right stocks.
Risk/Return ratio
Risk/return ratio (aka risk/reward) is a measure of how much an investor can potentially gain from every amount risked in investment.
Investors use this parameter to gauge the returns they expect from every trade they make and whether it is worth the investment.
So it is a comparison of how much you might lose (risk) to how much you might gain on investment.
For example, if an investment has a risk/return rate of 1:7, it implies that you are willing to risk $1 to gain $7.
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How to calculate Risk/Return ratio
Risk/return ratio = net profit (reward)/maximum risk , where a good risk/return is always > 1:3.
Now let’s see how we can apply this formula.
Let’s say a stock that hit a previous high of $35 is now selling at $31, but you bought those stocks at $6200 hoping it would hit a high again.
If that stock hits another high of let’s say, $36, it means you have a profit of $5*200.
Therefore you divide $1000 by $6,200 and that will be your risk/return ratio.
Liquidity
Liquidity is simply how easy you can sell an asset, a stock or a security on the market. That is, changing the value into real cash.
Liquidity talks about how fast a stock or any asset can be sold on the financial market at a price which connotes to its true value.
The liquidity of the stock indicates how fast the stock is selling and it’s demand as well. Basically, if a stock is in high demand it means it has a high liquidity rate or potential, it would, therefore, generate a price trend on the market which would create a certain movement.
Volatility
Volatility is a financial parameter that is used to calculate the dispersion of earnings on stocks.
Volatility can also be referred to as swings in different directions on the stock market, therefore volatility can be simplified as the level of ease at which you can predict the price of a stock.
It might be safe to say volatility is relative to the price stability of the stock. Most day traders consider volatile stocks as very risky.
For them, the higher the volatility, the higher the risk. The trading style or philosophy of the trader will determine whether these stocks are a good fit.
Trend
The trend is simply the movement of the stock. Trend is affected by volatility, liquidity as well as certain financial reports and news.
Most WSDT I competitors capitalized big on some trending stock, which we will discuss later in this article. Trend is one major factor you cannot overlook in day trading in general.
News is one of the fundamental factors that generate a trend. It is however suggested to go in for stocks that trend consistently with a longer time frame, this gives the trader a picture of how susceptible the stock is.
Consistency in trending is one of the most important factors if you want to select the right stock, connoting to the fact that some trending stocks usually turn out to be a 9-day wonder.
Indicators and Signals
Indicators are like road signs in day trading. It is the compass of every good strategy which leads you to the right stock. Indicators can be harvested from a whole pool of factors, such as technical and fundamental charts, trends and market systems.
You would have to keenly observe the signals generated by the indicators on the stock market, stringent observation is required because some stocks often set off false signals and whipsaws.
In WSDT I, a number of competitors obtained their indicators from charts, whiles others followed the ones their team leaders cooked up for them. This is one important decision you have to highlight if you want to have a good advantage in WSDT.
Strategy
Certain stocks fit well with certain strategies. This is due to many factors. For example, if a stock is trending on a certain report, season or major financial announcement, then you might as well look for a strategy that connects with this purpose.
Winners displayed some amazing strategies, and it was a no brainer that they won this competition. As we explained above, the core purpose of a strategy is to wield the potential of the right stock to bring you earnings.
We took our time to compile and expatiate some of the magic formulas that gave WSDT winners the victory ride. Be sure to check these articles on the different types of strategies used in WSDT here.
Stocks in WSDT I Hall of Fame
ROKU
“ROKU was my big winner”
Gary K
It is no surprise that this was one of the most traded stocks in WSDT I. During the period in which the WSDT, was hosted, ROKU was making a buzz on the stock market.
Waves of it’s increasing sales and swamps of online streamers were spreading fast
Most WSDT I competitors took advantage of it and boom! They hit the gold!
What main lesson do we derive here? News! News! News!
News and reports influence strategies and the whole decision machinery in choosing the right stock.
OSKT
Like ROKU, OSKT was making huge waves on the stock market at the time WSDT I was hosted. Most of the competitors took advantage of it and made substantial gains.
These two above mentioned doesn’t end the list. There were other commonly traded stocks in WSDT I like oil and gas and gold stocks from DRIP & JNUG. The likes of SAP, ACN, ROKU, SQ, BB also raked in good profits for other winners as well
Final words
Your stock selection is one of the main things that will set you apart in WSDT II. It is an area you must deeply consider important and a place you must hit hard to sharpen your skills.
In football, a player can dribble, do all the fantastic skills and kicks, but at the end of the day, the final score is what determines the winner. It’s the same analogy in WSDT. Your strategy, skills, and resources must help you bring in good profits.
And what is the main way to bring in good profits? The right stock!
