Stock Investing Tips

This Stock Investing Tips page offers varied tips on stock investing. Be sure to check this page regularly - you will find valuable investing information!

Tip 1: Previous Day’s Trading Range

Do you ever consider the previous day's trading range when making a decision on a position? You should!

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It is a fairly simple task, but often provides many a successful trading opportunity.

But first, what exactly is the previous day’s trading range? It is the stock's lowest and highest price for the previous day’s trading period. A stock with a larger range will provide a better opportunity for a larger range generally provides better opportunities to make money compared to a stock which only fluctuates by a few cents each day.

Note: This is different from a “gap” at the open. A gap happens when the stock price opens significantly higher (or less) than the close price the previous day. In other words, if a stock closed at $12 yesterday and opens at $15 today, the stock is said to have “gapped” by up by $3. While stocks that “gap” up present a good trading opportunity, this is different from the previous day’s trading range.

The previous day’s trading range is derived by taking the high stock price for the previous day, and subtracting that from the low stock price for the previous day. For example if the previous day the stock opens at $34, and trades between $33.5 closing at $37, the previous day’s trading range is $3.50. If the range is more than $2, I definitely "short-list" this stock for consideration when planning my next day trades.

Here is the basic rationale - stocks that have a larger trading range present a better opportunity for larger moves to benefit from, than stocks that fluctuate by a few cents each day. It is important that the stock is trending upwards if you plan on going long on the stock. Also there should be an increase in the previous day’s trading range for the last 3 days or so.

Another reason I use the previous day’s trading range is to determine an entry position. Let’s use the example where the previous day the stock opens at $34, and trades between $33.5 closing at $37 – for a previous day’s trading range is $3.50. If this is the stock’s average trading range, I will set my entry position at $35.25, and give myself a $1.75 profit or higher!

One last note on this - It is easier to use an excel spreadsheet for this task. If you are interested in the excel spreadsheet, use the form below to send me an email and I will send it to you for free!

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