Day Trading Stock Market Guru

Volume is the amount of shares that are bought or sold on a stock in the trading day.

Keep in mind that in order to make money the stock price has to be moving up or down, this usually does not happen if the stock is not being bought or sold.

Pitfalls:
Too little trading volume and you most likely will not find a buyer for your position. Ever see a stock increase 300% on 15k volume? I have, and it will turn on you equally as fast without your trade being executed and then you are stuck in your position on the way.
Too much volume and you most likely will not see the price fluctuate much for your profit spread. A lot of volume and no change in price usually indicates too many shares available or dilution.

To give you an idea, I will choose a stock trading at one dollar a share with a minimum of 1 million shares volume per day with no maximum, well within reason. Of course you should take into account how many shares of the stock are available before writing that in stone. Penny stocks can have billions of shares in the market, that will require a lot volume to change the underlying security's price rapidly.

The main idea with volume is to help you decide if your particular play will be profitable enough. What I mean is...how much money do you have to work with? How much of the stock can you buy? How long are you going to have to wait? What will be the buy/sell price spread have to be to make a profit? I am going to discuss that next.

Lets say that Google is trading today for $600 a share. You only have $1500 in your brokerage account. Your stock broker charges $12 a trade. You could buy 2 shares of Google but your selling price would have to be $612 a share just to break even. It could just as easily go down and you will lose that money.

To maximize your profit you want to minimize risk. You also will find more stocks that fluctuate up or down at least $.10 cents a day, as opposed to $12 dollars.

Look at it this way. If I have $10k in my brokerage account and the price of the stock I want to trade is $1 I can buy almost 10k shares and the price spread only has to be $.01 for me to make a profit of $100.

Ok, so theoretically you could lose that $100 as well, but that is a discussion for the next topic.

You have to know which direction the stock is moving. Even blue chips that you pick from the newspaper will have a bad day. To minimize your risk there are some basic tools you need to gauge the future direction of the stock.

1. Real Time Quotes. Most quotes you see on yahoo or msn finance are 15 minute delayed. It would be advisable to suscribe to a service that allows you to know what the stock is trading at minute by minute in real time.
2. Level II quotes. While not absolute necessary it will give you the number of buys to sells the market makers have sent to their system. If the stock is moving up that day you will most likely see many more orders in their system for buys then sells. Vice versa if going down they would have many more orders for sells.

Being able to see what is actually happening in the market is crucial. You need to know that the price isn't just being manipulated because of other reasons. But, if it is being manipulated you can use that to your advantage.

The best book viewer I have ever seen was the Island or INET. It used to be free but if you can pay the $15 monthly fee it would be well worth it to see the trades that are routed to that particular market maker. It is by far the most simple and reliable tool I have found.

And you know it should be simple. If I am trading a stock I will feel more comfortable that I see there are 2 to 1 buyers versus sellers. To me that is the best one can hope for. I much prefer to trade based on a fact then a rumuor. Really, if I see that the buyers out number sellers 2 to 1 it doesn't matter to me if the price is currently going down, that kind of movement won't last regardless if there was a bad press article or they were downgraded.

Investopedia.com has a stock simulator which can give you valuble training without expense. I personally used it for three months where I was able to take the $100k starting balance and increase it to over $5 million before my balance was reset.

Etrade, TDwaterhouse and Ameritade are all very good discount brokers. If you are not familiar with them I would suggest depositing 2k in all 3 just to get a feel for the different features they offer.

After some time and practice using the tools ideas that I have outlined you will begin to get a feel and develop your own trading style. You might be a swing trader, contrarian, scalper, short seller it doesn't matter just what feels natural to you and what you are comfortable with.