Our content may include links to products from our partners
The Smart Investor content is intended to be used and must be used for informational purposes only. We are not an investment advisor and you should NOT rely on this information to make investment decisions.
Day trading (also referred to intraday trading in the article) is the process of trading on a daily basis – you open and closed positions within a day.
It could be very dynamic and challenge as well as rewarding if you know the rules of the game. Many people prefer this type of trading because it looks relatively easy and you can make a profit each day.
The Best Ways To Find The Best Stocks To Day Trade
However, your positions are often based on speculation and as a trader you have to be aware of possible dangers down the road. Stock prices move up and down constantly, and you have to be ready to close your positions anytime.
Today’s topic is how to find the best stocks to trade in.
1. Get Up At The Crack Of Dawn
Well, perhaps it’s not as bad as it sounds but forms this habit – get up early.
When it comes to trading everything begins early and you know you have to be prepared before you start your daily work. Forget about the 9-to-5 gray flannel life, now you are a trader and everything entirely depends on your strategy, skills, and wisdom. Basically, there are thousands of different stocks out there and the more there are, the more time one should spend researching and collecting data.
That’s why, it’s not surprising a day trader, before anything else, should wake up early and do research and prepare their plan for the day. The more you are informed, the more predictable will be the outcome of your decisions.
Drink your coffee at 7 and get down to a business at 8 o’clock. This gives a good hour and a half before the market opens. So, it’s not necessary to be up with the chickens, but be up with the market.
2. Volume and Liquidity
We agree that in order to be a great trader, it’s crucial to determine and find out the finest stocks in the market.
The time has come to mention two very important characteristics of the best securities – their liquidity and volume. To start with, liquidity is the quality of a security to be easily sold or obtained. This is a great advantage when it comes to daily business. You do not want to end up the day having stocks you cannot get rid of. In addition, the volume of an asset, or it’s market capitalization, which shows the quantity of security is of utmost importance.
Higher volume = Easier Trade
If you had 1000 stocks it would be much easier for you to distribute them than if you had just 10. We shouldn’t forget that larger quantity often leads to discounts on the security, therefore you obtain an asset under budget.
Useful Tool: Trade Volume Index. This is a great tool which shows when a security is bought and when sold. This could be easily used to track the “demand and supply” of a stock.
3. Medium Volatility
Generally speaking, volatility is the rate at which a security’s price varies and changes. This indicator shows the risk associated with an investment in a particular stock. Wise and skilled intraday players prefer to trade in securities with medium volatility – less than 5% price change on a day-to-day basis.
Highly volatile stocks tend to be extremely unpredictable and only the most experienced traders opt for them. Moreover, they are not very liquid, which is an option you should avoid. You can also read the great article written by Carolane on using Candlestick signs to estimate the medium volatility of an asset.
Useful Measure: Beta is an existing measure which investors use to compute the volatility of a stock. It is a part of the so-called fundamental analysis.
4. Following The Sector
Usually, stock prices move in the same direction, being correlated, as their sector or index group.
How does this benefit you?
If you trade with equity and the sector moves up, then you can easily predict a rise in your stocks’ prices. Being an expert in a particular sector or industry and the respective indices is a great advantage. These equities are reliable and predictable which saves precious time and efforts.
On the other hand, don’t follow the flock if you don’t think you should. Most probably, following what other people do is an inseparable part of our genes and human nature. Maybe animal instinct to survive. But you are a trader, not an animal.
A currency’s price starts going down and market participants start selling. The more they sell, the more its prices is declining. The more it’s declining, the more people continue selling. This process could often be the result of panic, nothing fundamental which can affect a currency that adversely. Others will be afraid of losses and will keep their positions, which may eventually lead to even more financial losses.
What do good traders do
Well, they make sound decisions. If you are a poet, then emotions are a great asset, but if you want to be successful in intraday trading – cool and precision would be much better. Follow your strategy and plan, not the masses. Open and close positions based on your tactics and expectations.
5. Use Pre-Market Movers
The pre-market is the time between 8 and 9:30 when the markets open. This hour and a half are used by investors to conduct research and prepare their strategy for the day.
Which are the hottest stocks you should opt for using the premarket conditions?
First, choose securities with a greater value than 5 USD. Opt for those with a high volume. As you know, higher volume equals higher liquidity.
Track and observe the so-called 30-day average volume, which comes in handy assuming you have found security with a price above 5 USD and a high volume. This indicator would give you an idea about the price movements of the stock over the last 30 days. Thus, you are more informed. Check the broader market indices (Russell 300, S&P Global, Dow Jones, NASDAQ, etc.) rather than a specific industry or sector.
Stock prices tend to follow the movements of the broader market. Select a great trading platform which offers you a range of pre-market movers.
6. Be Patient And Plan Well
Last but not least, what’s the common thing among all successful traders? Patience and organization.
Perhaps it sounds weird but good intraday traders do not act every single day. For example, the market does not offer them opportunities which they think might be profitable.
Then why should you buy or sell for the sake of daily participation?
Do not trade if this is against your strategy and plan. Impulsiveness could be your arch enemy and your worst nightmare. In order to achieve this, you have to be able to pre-plan your actions and be ready with your trading strategy.
As you can see there is a wide range of strategies, tools, and ways to pick up the best stocks in the market. Even though this is a day trading, becoming an expert is a thorny and challenging path which might take months and years. For starters, arm yourself with patience and determination.
Learn to be more organized and plan in advance; wake up earlier than the market opens. If you want to find the best stock of the day, choose medium volatile, high liquid stocks and follow the group. Do not follow the masses if you don’t have to, or it’s not part of your plan. Use premarket movers and patience as your strongest defense. You can find much more info on our technical analysis articles.