How to Properly Analyze Stocks for Trading Using 4 Key Data Points

When it comes to trading stocks, making informed decisions is crucial. Choosing the right stocks to trade isn’t just about luck—it’s about understanding the key metrics that drive price movements and market trends. If you want to improve your stock selection and avoid costly mistakes, you need to focus on four essential data points.

These four key metrics help traders:
✅ Identify the right stocks to trade based on their characteristics.
✅ Avoid stocks that lack momentum or carry excessive risk.
✅ Optimize trading strategies for both small-cap and large-cap stocks.

In this guide, we’ll break down Market Capitalization, Float, Gap Percentage, and Volume, explaining why each is important and how you can use them effectively. By the end, you’ll have a solid framework for analyzing stocks and fine-tuning your trading approach. Let’s dive in!

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Understanding Market Capitalization (Market Cap) in Trading

What is Market Capitalization?

Market capitalization, often called Market Cap, is the total value of a company’s outstanding shares in the stock market. It is calculated using a simple formula:

Market Cap = Stock Price × Total Number of Outstanding

This number tells us how big a company is in terms of its market value. Instead of looking at just the stock price, traders and investors use Market Cap to classify stocks into different categories:

1. Large-Cap Stocks: Companies with a Market Cap over $10 billion (e.g., Apple, Microsoft).
2. Mid-Cap Stocks: Companies with a Market Cap between $2 billion and $10 billion.
3. Small-Cap Stocks: Companies with a Market Cap below $2 billion.

💡 Key takeaway: The stock price alone does not tell you if a company is big or small. You need to look at Market Cap, which considers both stock price and the total shares available.

Why Market Cap is Important for Traders

Market Cap is crucial in trading because different types of stocks behave differently in the market.

1. Large-Cap Stocks (Stable & Less Volatile)

• These are big companies that have been around for a long time.
• They tend to be less risky and move more predictably.
• Suitable for traders who prefer a steady, lower-risk trading style.
• Example: Apple (AAPL), Amazon (AMZN), Microsoft (MSFT).

Best strategy for large-cap stocks?

A breakout strategy works well for large-cap stocks. Since these stocks move more steadily, traders look for moments when the price “breaks out” of a resistance level with high volume.

2. Small-Cap Stocks (High Risk, High Reward)

• These are smaller companies that can be new or in high-growth industries.
• They are more volatile, meaning they can move up or down very quickly.
• Higher risk but also higher reward—small caps can double in price in a short time, but they can also drop just as fast.
• Example: A biotech startup with a new drug approval might skyrocket in price overnight.

Best strategy for small-cap stocks?

A consolidation long strategy works well for small-cap stocks. This involves identifying when a stock is stabilizing after a pullback and buying before the next big move.

How to Use Market Cap in Stock Scanning

Since large-cap and small-cap stocks behave differently, traders use scanners to filter stocks based on Market Cap.

Setting Up a Market Cap Scanner

• If you want to trade small-cap stocks, set your scanner to Market Cap < $800 million.
• If you want to trade large-cap stocks, set your scanner to Market Cap > $800 million.

Example: Imagine you’re using a stock scanner like Stox.io

You can create two different scans:

1. Small-Cap Scanner Settings:

• Market Cap: Below $800 million
• Strategy: Finding high-volatility stocks for quick trades

2. Large-Cap Scanner Settings:

• Market Cap: Above $800 million
• Strategy: Finding breakout opportunities with lower risk

Using these filters, you only see the stocks that match your trading style, saving you time and helping you avoid stocks that don’t fit your strategy.

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Market Cap Summary:

Market Cap is a foundational metric in stock trading. Knowing whether a stock is large-cap or small-cap helps you:

✅ Choose the right trading strategy.
✅ Avoid stocks that don’t fit your risk tolerance.
✅ Set up a stock scanner that filters out the noise.

Now that you understand Market Cap, let’s move on to the next key metric: Float—what it means and why it affects stock volatility.

Understanding Float and How It Affects Stock Volatility

What is Float in Stock Trading?

In simple terms, Float refers to the total number of shares of a stock that are available for the public to trade in the open market.

Think of it this way: A company might issue 100 million shares in total, but not all of those shares are available for traders like you to buy and sell. Some of them might be held by company insiders, executives, or long-term investors, meaning they are not actively traded.

💡 Formula for Float:

Float = Total Outstanding Shares − Restricted Shares (Insiders, Executives, Institutions)

Example:

This means the float is only 20 million shares (because those 30 million are not available to trade). while Trade Ideas works well for those trading primarily on a desktop.

A company has 50 million total shares, but 30 million are held by insiders and executives.

Why Float is Important for Traders

Float is one of the most important factors in stock volatility. The lower the float, the more explosive a stock’s price movements can be.

Here’s why:

• A stock with a small float has fewer shares available to trade.
• If demand suddenly spikes (many traders trying to buy), the stock price can skyrocket in minutes.
• Conversely, if traders start selling quickly, the stock price can plummet just as fast.

Think of Float Like a Tug-of-War Game:

• If there are fewer people in the game (low float stock), even a small force can move the rope quickly.
• If there are many people in the game (high float stock), it takes much more effort to move the rope.

How Float Affects Stock Volatility

1. Low Float Stocks (High Volatility)

• Stocks with less than 10 million float are very volatile and can move dramatically in minutes.
• Example: A stock with only 800,000 shares float can jump 50%-100% in a single day if traders rush to buy.
• Great for day traders looking for quick, aggressive moves.

💡 Pro Tip: If you trade low float stocks, be ready for fast price swings and high risk.

2. High Float Stocks (Low Volatility)

• Stocks with hundreds of millions of float (like Apple or Microsoft) move much slower.
• Their prices don’t jump as dramatically because there are too many shares available for trading.
• Better for stable, long-term trading strategies.

💡 Pro Tip: High float stocks are ideal if you prefer consistency and less risk.

How to Use Float in Stock Scanning

Traders use stock scanners to find stocks with the right float levels for their trading style.

Setting Up a Float Scanner

• If you’re looking for high-volatility stocks, set your scanner to look for float < 10 million.
• If you prefer stable, lower-risk stocks, look for stocks with float > 50 million.

Example Scanner Settings for Small-Cap, Low-Float Stocks:

1. Market Cap: Below $800 million (to filter small caps).
2. Float: Below 10 million (to find explosive movers).
3. Volume: At least 200,000 shares traded (ensures there’s enough liquidity).

This scan will only show you stocks that have the potential for big moves, helping you avoid stocks that are too slow or illiquid.

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Breaking Down Float Categories

Example:

• A biotech penny stock with 1 million float could double in price in a single day.
• Apple (AAPL), with over 15 billion float, moves much slower, making it a stable investment.

Float Summary:

Float is a critical metric that affects how much a stock can move in a day.

✅ Low float stocks = big, fast moves (good for momentum traders).
✅ High float stocks = stable, slower moves (good for conservative traders).
✅ Use stock scanners to filter stocks by float so you can find stocks that match your trading style.

Now that you understand Float, let’s move on to the next key metric: Gap Percentage & Volume—how they work together to identify the best trading opportunities.

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Understanding Gap Percentage & Volume – How They Work Together

What is Gap Percentage?

Gap Percentage refers to how much a stock’s price has changed overnight, from the previous day’s closing price to the pre-market price. This metric is important because it indicates strong buying or selling pressure before the market even opens.

💡 Formula for Gap Percentage:

Gap % = (Pre-market Price − Previous Close Price) / Previous Close Price x 100

Example:

• A stock closed at $10 yesterday.
• Today, in pre-market trading, it is at $12.
• The Gap Percentage is:

(12-10) / 10 x 100 = 20%

This means the stock gapped up by 20%, signaling high demand before the market opens.

Why Gap Percentage is Important for Traders

Gap Percentage is one of the strongest indicators of momentum in the stock market. Stocks that gap up or down significantly attract traders’ attention, leading to increased trading volume and price movement.

1. Stocks That Gap Up (Bullish Sentiment)

• A stock gapping up means buyers are aggressively purchasing before the market opens.
• This is often due to good news like earnings reports, analyst upgrades, or positive industry developments.
• Example: A biotech company announces FDA approval for a new drug, causing the stock to gap up 30%.

✅ Traders look for gap-ups to catch strong upward momentum right at market open.

2. Stocks That Gap Down (Bearish Sentiment)

• A stock gapping down means sellers are dumping shares in pre-market.
• This is often due to bad news like earnings misses, negative press, or legal troubles.
• Example: A company reports poor quarterly earnings, and its stock gaps down 15%.

✅ Traders look for gap-downs to potentially short the stock or wait for a reversal.

What is Volume in Stock Trading?

Volume represents the total number of shares that have been traded within a given time frame. In pre-market trading, high volume indicates strong interest in a stock.

Think of volume like a car’s engine.

• High volume = strong engine → the stock can move fast.
• Low volume = weak engine → the stock is less likely to move much.

Why Volume is Important for Traders

Volume confirms how real and strong the stock’s price movement is.

1. High Volume Confirms the Move

• A stock gapping up with high volume means many traders are interested, increasing the chances of follow-through after market open.
• Example: A stock gaps up 15% but has only 10,000 shares traded → Weak signal (low volume).
• If the same stock gaps up 15% with 1 million shares traded → Strong signal (high volume).

2. Low Volume Can Create Fake Moves

• A stock might gap up 15%, but if the volume is very low, the price might quickly reverse once the market opens.
• Example: A stock gaps up pre-market but has only 5,000 shares traded → It’s not reliable because it could be just a few traders moving the price.

✅ Always check volume when analyzing a gap percentage! A gap means nothing if volume doesn’t support it.

How to Use Gap Percentage & Volume in Stock Scanning

To find the best stocks to trade, traders use scanners that filter for both Gap Percentage and Volume.

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Scanner Settings for Small-Cap Stocks

If you’re looking for small-cap stocks that have strong momentum, set up your scanner like this:

• Gap %: At least 10% up from yesterday’s close.
• Volume: At least 200,000 shares traded pre-market.

Example: A small-cap stock is up 12% pre-market with 500,000 shares traded → ✅ Good potential for a breakout after market open.

Scanner Settings for Large-Cap Stocks

For large-cap stocks, set your scanner like this:

• Gap %: At least 5% up (large-cap stocks move slower than small caps).
• Volume: At least 20,000 shares traded pre-market.

Example: A large-cap stock is up 6% pre-market with 100,000 shares traded → ✅ Strong movement, worth watching.

How Gap Percentage & Volume Work Together

✅ Best stocks to trade? The ones with strong Gap % AND high volume.

When to Use Gap % vs. Change %

1. Pre-Market (4:00 AM – 9:29 AM EST)

• Use Gap % to find stocks moving before market open.
• Example: Stock gapped up 10% pre-market, indicating strong early interest.

2. After Market Open (9:30 AM – Market Close)

• Use Change % to track real-time price movements.
• Example: Stock was flat pre-market but has surged 12% since open → New momentum building.

Pro Tip:

• Gap % is useful before market open.
• Change % is useful after the market opens.

Gap Percentage & Volume Summary

Gap Percentage and Volume are key indicators for identifying strong momentum stocks.

✅ Gap % helps you spot pre-market movers.
✅ Volume confirms whether the move is strong or weak.
✅ Use scanners to filter stocks with strong Gap % and high volume.

Now that you understand Gap % and Volume, let’s move on to the final key metric: Change Percentage—how to find stocks that continue moving after market open.

Understanding Change Percentage – How to Spot Stocks Moving After Market Open

What is Change Percentage?

Change Percentage measures how much a stock’s price has moved during regular trading hours, from the previous day’s closing price to the current price.

Unlike Gap Percentage, which only looks at the overnight price movement (pre-market), Change Percentage tracks real-time price movements after the market opens.

💡 Formula for Change Percentage:

Change % = (Current Price−Previous Close) / Previous Close Price x 100

Example:

• Yesterday, a stock closed at $10.
• Now, at 11:00 AM, it is trading at $12.
• The Change Percentage is:

(12-10) / 10 x 100 = 20%

This means the stock has increased 20% since yesterday’s close, which can signal strong momentum.

Why Change Percentage is Important for Traders

Change Percentage helps traders identify stocks that are actively moving after the market opens, even if they didn’t gap up or down in pre-market trading.

Many stocks don’t show major movement pre-market but start making big moves after the market opens due to:
✔️ Breaking news or earnings reports released after the opening bell.
✔️ Institutional investors placing large orders.
✔️ Retail traders and momentum players jumping in.

Gap Percentage vs. Change Percentage – When to Use Each

Key Difference:

• Gap % = Used before market open to find stocks with overnight movement.
• Change % = Used after market open to track stocks that are actively moving during the day.

How to Use Change Percentage in Stock Trading

Many stocks might not gap up pre-market but still become strong movers during the trading session. Change Percentage helps you identify these opportunities.

1. Finding Midday Breakout Stocks

• Some stocks remain flat pre-market but start moving after 10:30 AM.
• By scanning for Change %, traders can catch momentum before the move gets too extended.
• Example: A stock was unchanged at open but by 11:30 AM, it’s up 15% → This signals strength and potential continuation.

2. Identifying Stocks for Reversals

• A stock may gap up 10% pre-market but then starts dropping after market open.
• Monitoring Change % lets traders see if the move continues or reverses.
• Example: Stock gapped up 10% pre-market, but at 10:45 AM, it’s down 5% → This signals a possible reversal or fade.

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How to Scan for High Change Percentage Stocks

To find stocks moving during the day, traders set up scanners to sort stocks by Change % after the open.

Scanner Settings for Small-Cap Stocks (Post-Open Movers)

• Change %: At least 5% up since open.
• Volume: At least 300,000 shares traded (to avoid low-volume stocks).
• Market Cap: Below $800 million (for small-cap momentum plays).

Example: A small-cap stock that didn’t gap up pre-market but is now up 8% with 1 million volume → ✅ Strong intraday mover worth watching.

Scanner Settings for Large-Cap Stocks

• Change %: At least 2% up since open (large caps move slower).
• Volume: At least 500,000 shares traded.

Example: A large-cap stock like Tesla (TSLA) that is up 3% post-open with high volume → ✅ Good potential for an intraday trade.

Why Change Percentage Matters for Midday Scanning

Many traders only focus on pre-market gaps, but some of the biggest moves happen later in the day.

Example of a Stock That Didn’t Gap Pre-Market But Became a Strong Mover:

• A stock closed at $5 yesterday and opened at $5.05 (no real gap).
• By 12:00 PM, it’s trading at $6.50.
• That’s a 29% increase!
• If you only looked at pre-market Gap %, you would’ve missed this opportunity.

Lesson: After the market opens, focus on Change % to find the strongest stocks of the day.

How Change Percentage and Volume Work Together

Just like with Gap %, Change % must be combined with Volume to confirm the move.

Best stocks to trade? The ones with strong Change % AND high volume.

Change Percentage Summary

Change Percentage is an essential tool for intraday trading because it shows you real-time price action.

✅ Use Change % to track midday breakouts and momentum shifts.
✅ Use scanners to filter stocks by Change % after the market opens.
✅ Always check volume to confirm if the move is real.

Now that you’ve mastered Change Percentage, you have all four key data points to properly analyze stocks for trading!

Conclusion: Mastering Stock Analysis with These 4 Key Data Points

By now, you have a solid understanding of how to properly analyze stocks for trading using the four key data points:

✅ Market Capitalization (Market Cap): Determines if a stock is large-cap (stable) or small-cap (volatile), helping you choose the right trading strategy.
✅ Float: The number of publicly available shares—lower float means higher volatility, leading to explosive price movements.
✅ Gap Percentage & Volume: Shows overnight price changes and market interest before the open, helping you spot momentum stocks early.
✅ Change Percentage: Tracks intraday price movements after the market opens, helping you find stocks that are making big moves throughout the day.

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