The Best Energy Stocks for Daytrading
Jul 17, 2017 Trading Blog
So what should a very short term daytrader or swing trader be looking at when choosing stocks to trade in the energy sector? About 70% of my trading is short term intraday movement and it really helps to have a small consistent group that you can get to know in order to make quick trading decisions to capitalize on overall sector momentum. My primary trading list contains a dozen stocks and I’m going to post the list with all the items below in the next couple of days, but I thought I’d start by giving a rough outline of where to start the list creation process.
You can, of course, take the easy route and just trade the XOP, OIH or XLE, but I really think you lose a lot with those. The XLE is too heavily weighted to CVX, XOM and SLB. If those three aren’t moving your way, XLE isn’t going to help you. It’s even worse with OIH where SLB and HAL make up a huge portion of that ETF. That leaves the XOP, which I do often trade when I can’t find a desirable setup in an individual stock. But if you really want to capture big moves, you have to know which stocks are really in or out of favor each day.
The best way to really get better at daytrading is to focus all your attention on a small group of stocks and their characteristics. With oil and gas stocks, the things I look for are:
- Volume – The stock must have at least 1 million shares traded per day at a minimum, 2 million or more is preferred.
- Spread – The stock must have a spread of less than 3 cents, preferably just a penny.
- Range – The stock must have an average true range of at least 50 cents a day, preferably 75 cents or more.
- Market Capitalization and number of outstanding shares – On average, thicker larger cap stocks move less than thinner smaller cap stocks.
- Volatility – Each stock has a personality, some move wild and quick, while others move slow and smooth.
Once you have your group narrowed down on those characteristics, the next set of criteria will help distinguish your stocks during the day:
- Where are their operations? Which basins are they active in and how much acreage, locations and reserves do they have? Sometimes all the stocks within the same basin will move together. If you see several same basin stocks moving together, the move may have fundamental reasoning behind it.
- What is their production level? How many barrels of equivalent (BOE) are they producing per day? Changes in guidance in production will cause similar changes in movement. Many times a guidance change will be felt more by a company with a lower level of production. Knowing production levels of each stock is a good way of comparing stock sizes and possible future growth rates.
- What is their production mix? How many of those barrels per day are oil, how many are NGL’s and how many are natural gas? You will want to know which stocks are oil heavy and which are gas heavy. When the price of either commodity moves during the day, the stocks that share that commodity as a base should move as well.
- What do the financials look like? How much debt is the company carrying? What does their cash flow look like? How much in Capex are they planning?
- Are there any catalysts for the day? Upgrades/downgrades? Earnings revisions? Production revisions? Is there news of new discoveries, failures or changes in guidance?
There are many other smaller considerations to add to that list and I will cover them when I post my actual trading list over the next week. Good luck out there and good trading.