If you seek big returns over short period of times, it is crucial you locate stocks with high volatility. Volatile stocks have the ability to make double digit gains (or losses) within a day or two. Since the reward is high, you must be willing to accept a high degree of risk.

The secret to finding volatile stocks to exploit comes in knowing what to look for. Since stock prices are driven by nothing more than simple supply and demand, it would only make sense to look at stocks with a high demand and a low supply of shares outstanding.

Stocks with a small amount of outstanding shares (shares available to the public) can usually be found amongst lower priced stocks. If you use a stock screener, search amongst those stocks priced $2 to $10. Look for stocks with a daily trading volume of 50,000 to 200,000 shares.

Now that you have your list of stocks that have a low supply of shares available for purchase, all you need do next is look for stocks on this list where there is now a high demand. One of those stocks on the list was KGN, a mining company. For the last two weeks in October 2009 the stock price was 4.60. Average trading volume was 150,000 shares a day.

At the time gold was soaring and demand for gold and anything related to it is picking up. KGN jumped 15% in the first week of November and by the end of the month was up 46%.

Another signal I use to alert me to a volatile stock that investors are buying, is the daily percentage gain. If a stock can gain 10% or more in a day, I want to look at it closer.

Ask yourself these questions:

1. Why did it make a big gain?
2. Will the momentum last a couple days more so you can cash in?

Look at the stock’s chart and make sure it has not rallied too much recently. Always remember, “What goes up must come down”. If the stock has gained 50% in the last week, you may want to pass. It’s probably made its gains already and profit taking will kick in soon.

On the other hand, if the jump is only the first or second such recent jump, it may be at the beginning of a rally that you might want to get in on.

To discover more tips, tricks, and techniques for finding stocks ready to explode, get my free report by clicking here: “How To Trade Volatile Stocks”

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