Immediate definition
In plain words — Too many stocks remain after the scan. Hurst ranks them first by ability to move, then by selected fundamental qualities. But a stock that moves sharply may also be difficult and expensive to trade.
In Chapter 7, volatility is the leading criterion because the system seeks return per unit of time. Stability is a secondary preference when two candidates are otherwise comparable. The hierarchy is explicit: screening focuses attention, while outcomes depend mostly on applying the method.
The 1970 volatility criteria
Hurst favours fewer shares outstanding, broad percentage movement, and high or rising short interest. The rationale is mechanical: relatively modest demand may move a restricted float more, while short covering may add buying pressure during an advance.
In the book, fewer than one million shares indicates high capacity for movement; above six million requires much greater volume. These are historical bands tied to the 1970 market. They cannot become modern thresholds without normalising float, price, turnover, spread, and depth.
The stability criteria
The second group covers rating, price/earnings ratio, dividend yield, and earnings growth. For a long candidate, Hurst prefers higher rating and yield, a lower P/E relative to the stock's own history, and steadily improving earnings. For a short, he reverses the fundamental direction. Volatility is not reversed: he seeks movement on either side.
These data do not form a complete valuation model. They are rapid tie-breakers after cyclic readability and signal proximity. Hurst warns against turning a sandwich into a banquet: analysis that takes too long may miss the point it was designed to capture.
Three corrections required today
Volatility is not liquidity. A large move may be caused by a thin order book. The SEC notes that microcaps can be difficult to sell, experience sudden price changes, and offer limited public information; those conditions can also make manipulation easier.
Short interest is not short-sale volume. FINRA defines the former as a snapshot of open short positions on discrete dates; the latter is transaction volume marked short during a day. Confusing them creates a false reading. The source and observation date must travel with the filter.
A filter is not an outcome. Changing thresholds until history looks good measures adaptability to the past. Proper evaluation retains every candidate, uses point-in-time rules, and includes spread, slippage, borrow, and missed executions.
A more robust sequence
First verify actual tradability. Then apply predefined technical and fundamental criteria. Only afterward assess the signal through complete analysis. A seemingly ideal candidate may still be excluded when data, liquidity, or operational risk cannot support the trade.
The source-checked label records fidelity to Hurst's published criteria, not
their contemporary predictive validity.
Sources
- J. M. Hurst, The Profit Magic of Stock Transaction Timing, Prentice-Hall, 1970, ch. 7, pp. 116–119 — volatility and stability criteria and their stated role.
- SEC Office of Investor Education and Advocacy, Microcap Stock Basics: Risk, 2016 — liquidity, volatility, information, and manipulation risk.
- FINRA, Short Interest: What It Is, What It Is Not, 2023 — distinction between short interest and short-sale volume.
Related entries
- Total scanning and the stable — the list being filtered.
- Selection and tracking — the full process.
- Price tracking — from list to conditions.