What are “liquid stocks”?
Liquid stocks is the name I gave to a screen for relatively well-behaved stocks that I target for multi-week swing trading or daytrading. Under most conditions, I do not want to experience liquidity problems, hence, the name. Of course, some of the stocks that emerge from this screen may not be considered “liquid” by larger traders or funds.
Starting with a widely-available subscription database of all US-traded stocks, I wrote programs to reduce that population. Subsequently, I found discretionary factors that serve to improve the signal-to-noise ratio of the stocks I want to look at. The result is liquid stocks, which serve as the basis for much of my analysis and target generation; however, they are not always the sole factors. Additional factors are explained in the applicable pages on this blog.
The following mechanical filter is run every night; thus, the results change slightly every day. Some of the formulas/methods are complex, but the major factors are:
- Dollar Volume (smoothed) > 15,000,000
- Close > 5.00 (Historically, $5-8, and I gradually adjust it according to market conditions.)
- Average Volume (15-day exponential) > 450,000
- Optionable somewhere
- Traded on NASDAQ or NYSE; no pink sheets, no AMEX, no non-US markets.
- Stocks only, no ETFs
- Sector and Industry Group must have been assigned by my data service
- The company must be present on widely available earnings calendars, though exceptions and lags are tolerated.
- Not flat-lined for more than 10 days.
- Volatility Filter: The Volatility Filter does not apply to Market Stats. Intention is to remove the low-hanging fruit… stocks that would not likely be traded, because of relatively low volatility, low potential for creating a great trading day. Day traders and swing traders want the higher volatility stocks. To visualize the difference, mentally compare most Utilities stocks to most Coal stocks. The filter does not require absolute levels; instead, stocks are ranked. In an attempt to reduce noise (bouncing) multiple timeframes and rankings are used.
- Float Filter: The Float Filter does not apply to Market Stats. Float > 25 Million.
In addition to the calculated factors, there are several discretionary factors.
- A few sectors, out of 31 max, are blocked. These blocked sectors have generally stood the test of time for providing few highly volatile, multi-week runners in either direction, so, for the most part, they can be safely ignored. Sectors that have remained blocked for years include Conglomerates, Drugs, Media, Tobacco, and Wholesale. Sectors that tend to find their way to “liquid stocks” from time to time include Aerospace/Defense, Automotive, Food, Health, Utilities, Real Estate, Insurance. At any time (after 7/10/2010), the complete list of activated sectors is given in Market Stats posts. As of 12/24/2010, the Persistence Lists and and related prep tools include stocks from all sectors (no sectors are blocked); however, Market Stats do not include blocked sectors.
- A few stocks are blocked manually. My trading orientation is towards well-behaved stocks with a tendency for multi-week trends. Stocks that are subject to intense M&A speculation (or fact) or are predominantly litigation-oriented could trend, but are likely to disappoint; hence, some are blocked. Some stocks traded on foreign exchanges tend to produce large gaps as viewed from the US. Many of these are blocked. Stocks that tend to be almost solely news-driven (special situations) are often blocked.
- Stocks from countries that are actively at war in their homeland are blocked by virtue of being tagged as being from the country, i.e., the country is blocked. Countries whose most well-behaved stocks are ill-behaved relative to many US stocks are blocked.
Limitations: I am not a company or news junkie, and I don’t have a staff, so I am quite likely to miss, lag, or be incorrect in any or many of these block/unblock judgments. Further, stocks pop into the calculated population (or change their name or symbol) all the time, and I am very likely to miss or not evaluate their suitability for extended periods. They are in, by default. The sole intention is to provide a relatively clean, value-added population, not to achieve institutional rigor, traceability, accountability, or consistency to some standard.
If you’re uncomfortable with any of this, or are looking for something more, the last thing I want is a misunderstanding, so please move on and stop reading my blog. I would love to hear from you, however.
As always, It’s YOUR money, so YOU decide!