Playing the stock market is supposed to be about winners—at least one would think, given the excitement around upwardly trending securities on Wall Street. But any financial expert worth their salt will tell you there is revenue to be made with the winners and losers of any given stock exchange, the trick is knowing which ones to pick. In fact, investing in shares of the biggest stock losers can yield some of the biggest earnings.
This Is How To Use The Biggest Daily Stock Loser List
Leveraging the biggest stock losers for trading and investing requires an understanding of the market and its motions. Here are some things you’ll want to understand:
- What Are Biggest Stock Losers?
- Why Are Percentage Decliners Important?
- How to Find Biggest Stock Losers
- Limitations of the Biggest Stock Losers
- How to Profit from Stock Losers
As much as investors groan through volatile periods these turbulent periods have highlighted a simple truth: Supply and demand cause movement in the stock market and movement is opportunity. Unless there are dividends, you can’t make money if the stock price isn’t moving.
The movement of a stock price is known as volatility. Volatility has a negative connotation but for investors, it can represent a significant trading opportunity. The very motion of prices as they rise and fall helps to identify stocks that are the biggest winners and the biggest losers on the major indexes. Especially if you can synch those movements to a technical trend.
What Are Biggest Stock Losers?
The basis of determining which stocks are the biggest advancers or biggest decliners is based on the percent movement in stock price. For the purposes of this article, we're going to focus on the biggest losers or percentage decliners. The securities seeing a substantial decline in price are the biggest stock losers.
The formula for calculating a percentage loss—in terms of daily performance—is as follows:
(Current stock price – Previous closing price) / Previous closing price = Percentage loss
So, a stock that is currently trading at $25 after a previous day’s close of $28 would be showing a percentage loss of -10.7%.
Why Do Stocks Make Large Percentage Declines?
There are a number of reasons why a stock is seeing a large percentage decline. Perhaps a recently released earnings report is showing a drop in revenue, maybe the company’s business model needs a serious overhaul, perhaps a rival company made a breakthrough, or political instability plunged the market into chaos.
Whatever the reason, a decline in the price of a security is inevitable, and it happens to the best companies every day. A top-notch will understand why the decline is happening, and that will affect the investment decision.
If a company is been doing well and seeing a decline in its daily performance, it may be a statistical blip or a somewhat impactful piece of financial news spurring the loss. If a stock has been in decline for days, weeks, or months, there may be more serious problems going on—and that may tell investors to stay away, or to buy it up while the price is low.
Although most commonly used in context with daily movement on the New York Stock Exchange, NASDAQ (NYSEARCA: QQQ), or S&P 500 Index (NYSEARCA: SPY), percentage decliners can be measured over any time period. For example, many stock screeners will allow you to apply a filter that can show the biggest losers (decliners) for a week or year. In fact, many investors pay close attention to the stocks that show the biggest average decline for the past year, in order to evaluate the stock as a potential Buy. One popular strategy is the Dogs of Dow which assumes last year’s worst performers will be this year’s winners.
Why Are Percentage Decliners Important?
Identifying percentage decliners is a form of technical analysis that traders use to find stocks with significant price movement. Historically, stocks with the biggest increase in price movements, either up or down, will continue to produce similar and often times predictable price movements. In this sense, the Percentage Decliners list is a starting point that investors and traders can use to find opportune entry points.
Because percentage decline measures price performance at a specific moment in time, investors should look at other metrics such as trading volume and basic fundamentals to determine which percentage decliners actually make attractive trade targets.
Many stocks show significant price movement but do so with low volume which is an underlying cause of the move. Low volume can make it difficult to enter and exit a trade because there aren’t many traders interested in owning or selling shares. An eager trader may see stock prices falling but if the trading volume is low the trend may continue.
Because stock XYZ is one of the biggest losers does not mean it is a profitable trading option. In order for a percentage decliner to be profitable, it needs to show an attractive risk/reward profile and visible catalysts for favorable price movement.
How to Find Biggest Stock Losers
The best way to find the biggest stock market losers is to look at the daily percentage gainer data shown on any credible financial website. The tools at Marketbeat.com include the Biggest Percentage Losers as well as a host of other screens including custom stock screens.
How to Profit from Percentage Decliners
Of course, there is a sound rationale for buying low and selling high. After all, that’s basically the business model for financial success in every industry, whether it’s real estate or stocks. In fact, for long-term, "buy and hold" investors, this is still the unmatched formula for success.
In today's market that requires investors to be a bit contrarian at times. A contrarian is able to use fundamental and technical analysis to purchase stocks that have fallen out of favor, then sell them for a profit as they rebound. Investors that look to profit from “buying on the dips” are using a technical analysis concept known as mean reversion.
Mean reversion is rooted in behavioral psychology. Everything from weather to human emotions can have periods that exhibit extreme behavior. For the most part, however, this behavior is simply not sustainable. Temperatures and precipitation go back to normal levels and even the most active life will go through a return to a more manageable schedule.
Suggesting a stock (or other security) will revert to the mean indicates that a stock will try to find a steady range to trade in. That range will have a midpoint we’ll call the “true value” of a business as determined by the market and extremes driven by results, market conditions, and sentiment trends.
Use Percentage Decliners To Find Stocks To Short
While buying stocks among the biggest decliners can be profitable, there are times when the stock will continue to underperform. Therefore, another way to profit from percentage decliners is by shorting the stock. Short selling is a riskier form of investment because it requires a leveraged portfolio so beware, anyone who tries.
Leveraged accounts mean borrowed money, in the form of a margin account, to “sell” the stock without owning it. If their analysis is correct and the stock continues to fall, they can purchase the stock at a lower price and make a profit from the difference.
The Biggest Stock Losers Can Be Big Winners
An image of Wall Street success easy to conjure is the upwardly trending graph. In that framework, the idea of a stock price bouncing up and down connotes instability, and a downward moving line can initiate sheer panic but not for the savvy investor. Savvy investors know any market can make money if you know how to play it.
Of course, that plays into the foundational rule about stock-picking and investments in general. They have to be analyzed rationally, leaving feelings at the door. Intuition based on experience and analysis is a different bird than unfounded gut reactions—especially those formed after digesting information confirmed or driven by a herd mentality. To that end, every investor looking to improve their investment decision-making should seriously consider the power of the biggest stock losers or percentage decliners as a source of ideas.
Percentage decliners offer important data for traders who are looking to profit from the price action of volatile stocks and futures. A percentage decliner is a stock that has seen its price fall the most as a percent in relation to its previous closing price.
Because the market is not static, percentage decliners continue to change even in after-hours or pre-market trading. In fact, many traders use these periods to identify securities that are setting the market up for profitable trades.
While commonly thought of in terms of stocks, investors can find performance decliners for virtually any asset class including commodities and futures. Many stock screening tools allow investors to get very precise—even allowing them to look at gainers by sectors or by volume. In this way, traders can customize the data to fit the criteria that they find most beneficial.
Trading percentage decliners is not a guarantee for success but is another tool in the investor's toolbox. The percentage decliners information should be used as a starting point to find potential trades, both bullish and bearish, that are confirmed by other indications and analysis.
MarketBeat All Access