There are still arguments whether stock day trading is a viable strategy or it is nothing but another get-rich-quick trap. Nevertheless, the quantity of intraday trades in the stock market has been growing rapidly, especially since lockdowns became a regular part of our life. Some people just get too bored and find trading an excellent alternative to Netflix. Some are striving to compensate financial losses caused by the pandemic crisis with a new source of income. If you intend to try your hand at day trading, you might want to start with finding stocks to trade. This article is designed to help you pick stocks for day trading and increase your chances of success.
Key points
- Day trading is a common trading approach in the stock market that involves buying and selling the same stock within a single trading session.
- The best stocks for day trading are characterized as highly liquid and volatile.
- Penny stocks are a terrible choice for day trading due to their low trading volume.
- Stocks of social media companies and financial companies are considered suitable for day trading.
What is Stock Day Trading?
Day trading is a stock trading approach that involves buying and selling a stock within the same trading session. Intraday trade can be open from a few minutes to several hours. Being a high-risk strategy, day trading requires a great deal of knowledge and diligence, as well as a wise choice of an asset.
Find Stocks for Day Trading
The price of an asset must move significantly throughout the day so that a trader can make a profit from short-term positions. Thus, the main thing one needs to look for when picking stocks for day trading is high volatility. High volatility is commonly believed to increase the risks of an investment. However, with a sound approach, it makes day trading deals profitable.
There is a group of volatile stocks that is better to avoid, though. This is penny stocks. Although penny stocks are volatile, they can let you down because of their low trading volume. Low trading volume may lead to a situation in which you won’t be able to sell the stock when the price reaches its heights. This is why day traders tend to trade stocks with higher market capitalizations rather than small caps.
So, another thing to consider in pursuit of a perfect asset is high liquidity or the ease at which one can quickly sell the asset. Apart from being easier to buy and sell, liquid stocks are generally cheaper in price. As the success of an intraday trade is dependent on speed and timing, pay attention to stock’s liquidity when considering to go into a day trade.
Picking the stocks for day trading is easy with Yahoo Finance and Google Finance. These services list highly liquid and highly volatile stocks. You can also check this information with your online broker site.
Trade Volume Index
Trade Volume Index (TVI) helps to determine the best stock for day trading. Using intraday price data, TVI shows the number of times the asset is bought and sold within a day period. The index is designed to help to support trading signals in a security’s price chart. Generally, traders use it to discern trading signals when the volume is supporting a price change.
Why do Most Day Traders Fail?
There are two things that may lead you to failure. The first one is a deviation from your strategy. The second one is not having a strategy at all. It is as simple as that. If you use a backtested strategy and are going through the losing period, it doesn’t mean that the strategy fails. It means that you are going through the losing period, which happens occasionally. At the end of the day, trading is not about the absence of loss. It’s about handling the losses with much more significant returns.
Examples of Day Trading Stocks
Big financial companies with large market capitalization offer stocks with both high liquidity and increased volatility. Commonly traded stocks from the financial services sector are Bank of America and Wells Fargo. Despite the criticism of speculation in the sector, financial services stocks remain one of the most lucrative for intraday trades.
Social media companies, such as Snapchat and Facebook, have attracted no less attention from day traders in recent years. Large trading volume in this sector makes traders from all over the world track price dips on the charts to buy stocks of their favorite social media platforms and sell them later on the same day.
Conclusions
When trying to find stocks to day trade, primarily things to pay attention to are liquidity and volatility. While high liquidity facilitates a quick acquisition and selling process, increased volatility allows a trader to benefit from bigger price swings. Such niches as financial services and social media offer stocks with great intraday trading opportunities. Yahoo Finance and Google Finance, as well as the broker you trade with, will help you screen stocks for day trading.
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