If you trade the UK stock market, we’ve put together a list of the top ten stocks for trading and why
According to data from the London Stock Exchange there are more than two thousand individual equities listed or quoted in London, that’s a big list for anyone to track and make sense of.
Having to cope with a large amount of data is not a new phenomenon for traders, however.
One of the reasons that the US Dow 30 index rose to prominence, was that in an age before computers and electronic trading, traders could, just about work out, what the effective change of those 30 stocks was worth in index points inside an hour, though that still required some pretty intense long hand calculations on their part. Something that was impossible with broader-based indices at that time.
Today we have the benefits of computers, spreadsheets and easily accessible online resources. But even if we wanted to track just five items or fields for each of those London equities, we would suddenly have more than ten thousand individual points of information to consider.
Studies suggest that the human mind can only really focus on or hold onto half dozen pieces of information at any one time, so even ten thousand items, which is a modest data set in modern terms, is going to be quite daunting and far too large for us to make sense of unaided.
So, what we need to do to discover what are the top UK equities to trade is to segment those two thousand stocks and identify the stocks that warrant our attention and set the others to one side.
Breaking down the information to find the best UK stocks for trading
Fortunately, some of this work has already been done for us. Stocks are categorised into both indices and sectors, the former is often determined by their market capitalisation or value, and the latter, of course, depends on the type of company they are or the type of business that they are in.
Picking stocks to trade from an Index
At the top of this tree in the UK is the FTSE 100 which we covered in our article about The Top Ten Stock Market Indices For Trading & Why
The FTSE 100 tracks the performance of the UK’s top 100 shares, they are the largest UK listed stocks by market cap and usually the most widely researched and followed UK equities.
The next tier down is the FTSE 250, which is comprised of the 250 largest listed equities, outside of the FTSE 100.
If they meet certain strict criteria stocks can be promoted from the 250 into the top 100 as part of the FTSE quarterly index reviews, which take place in March, June, September and December.
If a FTSE 250 stock is promoted in the review, then an FTSE 100 stock is demoted to make room in the topflight and that stock takes the place of the promoted stock in the 250 index.
Stocks can also move between indices after takeovers and mergers or in the event of an insolvency.
Note that these two indices are sometimes combined to create what’s known as the FTSE 350 index.
Trading stock from sectors
As well as being grouped together into indices equities are often categorised into sectors and industries based on the types of companies they are and how they make their living.
This sectorial classification can also be applied to stocks based on their index classification so, for example, we can have the FTSE 350 banking sector, that is, banking stocks within the top 350 UK equities. Or we can we have a wider classification of say, the industrials sector, which could contain all the UK equities that are involved in industrial pursuits.
Being able to slice, dice and group together stocks in this way means that we are able to make comparisons and or screen for certain characteristics among them.
Of course, to be able to undertake these screens we need a reliable source of information which we can access, luckily for us, the London Stock Exchange produces a range of monthly trading statistics including its trading summary fact sheet
Quality and quantity of stocks for trading
When we are considering what are the top UK equities to trade one of the items, we need to think about is liquidity. As traders, we should be largely agnostic regarding the direction in which an instruments price moves (assuming we are on the right side of that move of course) but we should be concerned about our ability to enter and exit a trade in it. A good track record of liquidity goes a long way to confirming those credentials.
The chart below (which is drawn from data in the LSE’s August 2019 trading summary fact sheet) shows us the top twenty UK listed equities in terms of the average number of individual trades placed in those stocks each day during August 2019.
Source LSE, Good Money Guide research
Based on these criteria BP, HSBC BHP and Royal Dutch are the most active UK stocks.
But let’s look at that data in a different way and consider the average daily volume traded, which we do in the table below.
When ranked by daily average volume the data looks somewhat different with small-cap Europa Metals (ticker EUZ) topping the table with more than 408 million shares of average daily volume traded throughout August 2019.
However, that turnover in Europa metals was split among an average of just 107 trades per day.
In fact, there are many examples in the table above of shares which enjoyed a high average daily turnover, but which were not actively traded when measured by the number of trades struck (highlighted in red).
As retail traders, the last thing we want is to find ourselves stuck in positions because of a lack of liquidity.
Contrast these stocks with something like Lloyds Bank which had average daily volumes of 169 million shares traded during August 2019 combined with an average of some 14,900 trades per day to boot.
The data teaches us a valuable lesson which is that volume traded, and liquidity do not always amount to the same thing.
Past performance of the top traded stocks
Of course, there are other factors to consider when we are trying to decide what the top UK equities to trade are. Foremost amongst these is performance, after all, there would be little point in trading shares with prices that don’t move.
One trading style or strategy that is always popular among traders is momentum. That is the idea that the more an instrument moves in a particular direction the more it is likely to continue to do so. In effect, when we talk about momentum trading, we are talking about trading price trends.
One way to track those trends is to look for stocks making new 52 week highs or lows and we have recently added that facility to the Good Money Guide in our trading signals section for example here is a link to the list of UK stocks making new 52 week highs
However, if you are interested in shorter-term performance then you will probably want to screen UK equity moves over a variety of time frames.
One way to this is to use a dedicated stock screener the table below is drawn from the performance tables found on digitallook.com but there are many other screeners available online from sites including Yahoo Finance, the London Stock Exchange, Trading View and more.
In this instance, I have looked at FTSE 100 stocks and ranked them by their 7-day performance the image shows the top 11 performers on this basis we can also asses these stocks over other time frames. For example, Experian is up over each of the five periods under observation another example of a stock with momentum in its price action.
Top ten UK stocks for trading in 2019
|Name||Price||Volume||Today Chg||7 Day Chg||30 Day Chg||3 Mth Chg||6 Mth Chg|
|International Consolidated Airlines Group SA (CDI)||478.80p||2,418,331||0.21%||7.57%||14.05%||3.91%||-8.17%|
|Smith & Nephew||1,927.50p||58,327||0.50%||2.42%||-0.28%||12.46%||28.20%|
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Fundamentals of high market cap stocks for trading
We would be remiss if we didn’t look at one of the most popular methods that traders use to decide what are the top equities to trade and that is the fundamentals of individual stocks.
The fundamentals of a stock are a series of data points and ratios that provide a snapshot of the stock and the underlying business it represents. The fundamentals cover items such as the price-earnings or PE ratio, or a stock’s earnings per share or EPS ratio, its dividend yield and the assets and cash within the underlying business. It’s also possible to look at and screen by other factors such as broker recommendations and forecasts or even directors’ dealings
News flow for liquid trading stocks
The truth is that the composition of the top UK equities to trade will vary perhaps even on a daily basis. Stock prices move around for a variety of reasons though the reasons or factors that drive price changes can often be reduced to changes in market sentiment.
One of the big drivers of changes in sentiment is news flow and that’s something that traders need to keep in touch with.
UK company news is released via what’s known as the Regulatory News Service or RNS but there can be other sources of news flow such as stories in the financial press and market reports, broker research and changes in recommendations and price targets, or news from an overseas or unlisted competitor for example. And these days even social media can be a source of information.
Once again retail traders can keep abreast of this new flow thanks to the internet
Most company news is scheduled and those release dates are known in advance which means that we can track those dates through the use of an earnings calendar such as this one from Bloomberg
Using an earnings calendar in combination with an RNS feed such as this one from InvestEgate means that traders can get ahead of the game and be aware of what events are upcoming and what those company announcements contain. The RNS service is open from 7.00 am in the morning London time so there is an opportunity to read company announcements before the markets open an hour later.
In summary, then the list of the top UK equities to trade will be something of a moveable feast based on market sentiment, news flow, company fundamentals, trade volume and liquidity.
Retail traders are in a better position than they have ever been to make sense of these inputs and there are plenty of online tools available to them to do just that.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.