Something every stock trader needs to know is what the best stock price to trade is. It’s important to know what the “sweet” price range for trading is, what the ideal lowest price is for trading to generate good profits. You need to know this range to set up your stock screener to select only ideal candidates for your next stock trade.
Selecting the best price range is very important for any stock trader because it significantly reduces the risk that’s associated with trading such stocks.
The lowest price level for online stock trading
The lowest price level is the first limit you have to think about when you want to pick stocks. This limit is very important because it’s well-known that stocks with really low prices aren’t suitable for stock trading. Here are three reasons to avoid stocks with really low prices:
a) Their prices are low for a reason.
These stock failed to gain recognition from investors as good investing opportunities. Big money managers often don’t analyze most of these low-priced stocks. Or their business models produce huge losses, and their shares are not worth a high price.
b) These stocks lacks liquidity.
Since big money managers like investment funds, hedge fund and big advisors failed to recognize these stocks, they aren’t traded too much. Their daily liquidity is low, that is, they trade only a few thousand shares per day on average. This means high risk for trading such stocks since it’s hard to enter or exit a trade without affecting the stock price.
c) They are often the target of stock scams.
The low liquidity and low price are reasons why these stocks are often the target for pump and dump schemes used by many anonymous hackers that want to pump the price up to make quick money. They buy several thousand shares. They send email to thousands or millions of addresses with content noting how great this company is and that their shares will explode soon. Many people react to these email and buy shares as they rise quickly. But when these scammers sell their shares, the price collapses and leaves all buyers with huge losses.
These are only three reasons to avoid the lowest-price stocks for stock trading, but they’re enough to understand why it’s very risky trading such low-priced shares.
And what is the ideal minimal price? The general rule is to select shares to trade that have a low price of $10, at least. Sometimes, you can hear about $5 levels, but today the $10 level is much safer. Many big money managers pick stocks with this or higher prices for their trading and investing needs.
The highest price level for online stock trading
There are many stocks that have prices of several hundred USD per share. Many well-known companies are so popular that their shares rose a lot. Google, Apple, Priceline, just to mention some of them.
The general rule for a high price limit for your trading is the size of your account. If your trading account size isn’t higher than 100,000 USD, it’s better to avoid these high-priced stocks. Although it isn’t necessary to buy 100 shares as a minimum today, it’s always better to buy 100 pc as a minimum. It’s the minimum for the best tradeable size.
If you have more than 100,000 USD available for your trading, then you can safely trade stocks above $100 per share.
The best stock price range for trading
If you combine the points listed above, you can find that the sweet price range for your swing trading or position trading is between $10 and $100 USD. Stocks with prices in this range offer plenty of trading opportunities.
My personal stock screener I run in Amibroker found more than 4000 possible trading candidates as you can see on this screenshot.
So, always incorporate a similar price range into your screening process. Low and high price conditions should be one the basic rules in your own screener.