c15 JWBT016-Busby October 9, 2008 9:21 Printer: TBD
Stocks and ETFs 147FIGURE 15.2 The movement of prices on the mini Nasdaq and Apple. The move-
ments often mirror each other.of the equity—either up or down—of at least $1. If the range is too small,
there will not be enough room for me to make money. My software does my
work for me and prints the numbers on my screen. However, it is possible
to determine the ATR of most equities by visiting http://www.barcharts.com.
Another consideration for short-term stock plays is liquidity. I want to
be able to get into my position, and I want to be able to get out of it. There-
fore, I must have liquidity. I want a stock with two or three million shares
traded during the course of the average business day. That volume will give
me enough buyers and sellers to make my play. Again, this information may
be obtained from http://www.barcharts.com.
A vital element of any stock that I trade intraday is beta. Beta is a sta-
tistical measure of volatility. It tracks the volatility of a particular equity
and gauges that volatility in relation to the overall market. By definition the
market has a beta of 1.0. Stocks with a beta less than 1.0 have less volatility
than the overall market. Stock with a beta greater than 1.0 are said to have
more volatility than the overall market. A stock with a beta of 2.0 is deemed
to be twice as volatile as the market. I look for day-trading stocks that have
a beta of at least 2.0. Increased volatility may translate into greater dan-
ger. That is, prices will generally move farther faster, and if you are on the
wrong side of a play, your losses will be greater. However, I want stocks
with reasonably high betas because I am looking for a rapid price move-
ment that will pay me. Stocks with low beta move too slowly and are not
as appropriate for day trading.