How To Pick Stocks For Day Trading – A Full Guide

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By Austin DeNoce

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What is Day Trading?

Day trading is a form of investing that involves buying and selling stocks within the same trading day. 

It is a fast-paced and dynamic way of participating in the financial markets, requiring a high level of discipline and knowledge. 

As would be expected, one of the key aspects of day trading is selecting the right stocks to trade. 

However, the “best day trading stocks” are anything but constant and change every day based on a number of factors that can impact the stock’s volatility and liquidity.

In this article, we’ll dive into some of the most important factors a day trader should consider when looking for stocks to trade.

How to Pick Stocks for Day Trading: Key Considerations

When selecting stocks for day trading, there are several key considerations that traders must keep in mind. 

Picking Stocks For Day Trading

Understanding these factors can help traders make informed decisions and increase the chances of success in the stock market.

Stock Price Volatility

Volatility is a crucial factor for day traders to consider when selecting stocks. 

Volatility refers to the range of a stock’s price movement or the degree of risk involved with large price changes.

High volatility in a stock means that the price is prone to rapid and unpredictable swings, which can provide opportunities for profit-taking but also increase the risk of significant losses. 

On the other hand, low volatility stocks tend to have more stable and predictable price movements, making them less suitable for day traders who seek quick profits. 

As a day trader, it’s important to weigh the potential rewards against the risks when choosing stocks and to be prepared for the possibility of sudden and substantial price swings. 

Ultimately, a stock’s volatility will play a significant role in determining its viability as a day trade.

A stock that moves in a tight 1% range all day does not provide many trading opportunities, whereas a stock with a 10% or greater range does. 

Generally speaking, traders should look for stocks with high volatility, as this can lead to significant price movements and more opportunities for profitable trades.

Nearly every day, there are stocks up triple digits, often with double-digit one minute candles.

Focusing your attention on those highly volatile stocks will present some of the best trading opportunities.

Stock Liquidity

Liquidity is another key factor that day traders need to consider when looking for stocks to trade. 

Liquidity refers to the ease with which a security can be bought or sold without affecting its price. 

Stocks with high liquidity have a large number of buyers and sellers, making it easier and faster to execute trades at a fair market price. 

Stocks with low liquidity can be difficult to trade, as there may be few buyers or sellers available, causing wider bid-ask spreads and longer wait times to execute trades. 

As a day trader, it’s important to look for stocks with high liquidity, as this will allow for quick and efficient execution of trades, reducing the chances of slippage and enabling the trader to take advantage of short-term market opportunities.

High liquidity also means that the stock price is less likely to be influenced by the actions of a few large traders, helping to maintain a more level playing field for all market participants.

The most liquid stocks can vary on any given day, but the biggest runners (high-volume stocks up the most for the day) and the well-known large-cap stocks like AAPL, TSLA, AMD, etc. are usually at the top of that list.

To be successful as a trader, you don’t need to trade the most liquid stocks, but it’s still important to keep liquidity in mind when actively searching for trades or accurately planning your entries and exits.

Stocks Should Fit Your Strategy

Finding stocks that fit your day trading strategies is crucial for success as a day trader.

How To Pick Stocks For Day Trading

Traders should be comfortable with the stocks they are trading. That doesn’t mean you have to be an expert in each stock, but you should understand why it fits into your strategy better or worse than other stocks. 

Every trader’s strategy utilizes a unique approach to identifying and executing trades, taking into account factors such as market trends, technical analysis, risk management, and even account size. 

For example, a trader with a six-figure account may make good money on 1-3% movers, whereas a trader with a few thousand dollars may need to go further out on the risk curve to make things worth their while.

The exact stocks that will work best for you will depend on your day trading strategy, but making a concerted effort to find and trade the stocks that best align with your strategy is crucial.

For example, a trader who follows a momentum-based strategy might only find success from stocks with strong price movements and high trading volume.

Meanwhile, a reversal trader might look for stocks that are at or near a 52-week low. 

By focusing on stocks that fit your strategy, you can avoid getting caught up in the excitement of the market (FOMO) and instead make informed and disciplined trading decisions that align with your goals. 

Finding the stocks that fit a strategy is an essential part of creating a strategy, so you should be diligent in your approach and think very deeply about the kinds of stocks that will work best with your style of trading.

Consider Your Profit Target

As a day trader, it’s important to identify your profit goals and targets when looking for stocks to trade. 

Having clear and measurable profit goals provides a roadmap for success, helping you to stay focused and disciplined in your trading decisions.

If your goal is to make a little side cash, you might not need to trade the biggest movers or high-risk stocks in the market.

However, if you have ambitious profit targets, what you trade will really matter, and you probably won’t want to waste your time trading stocks for a measly 1% gain.

Having profit targets in mind can tell you which stocks make sense to trade and which ones don’t. It can also tell when to enter and exit trades.

Just make sure you establish realistic profit targets that make sense for you, your strategy, and your goals, as well as the stocks you are trading.

Don’t expect a 10% profit if the stock moves 1-3% a day. Make targets that are feasible.

In short, identifying your profit goals and targets is a critical step in the day trading process, and traders should deliberately set and track these goals in order to achieve success in the market.

Consider Your Risk Tolerance

Considering your risk tolerance is another critical aspect of choosing stocks to day trade. 

Risk tolerance refers to your willingness to accept the possibility of losing money in exchange for the potential to earn higher returns.

As a day trader, it’s important to understand your own risk tolerance, as this will help you to make informed decisions about which stocks to trade and when to enter and exit trades. 

For example, a trader with a high risk tolerance might be comfortable taking on larger positions or holding onto stocks through huge price swings.

However, a trader with a lower risk tolerance might prefer to take smaller positions and hold onto stocks with a much more predictable range. 

By taking your risk tolerance into account, you can avoid making impulsive decisions and instead make trades that align with your overall goals and strategy. 

Traders should not enter a position in a stock that is up 50% on the day if they cannot handle big drops. 

Understanding your risk tolerance will help you to select stocks that you are comfortable with and that align with your risk management strategies.

Be Aware of Catalysts

Every trader should be acutely aware of any catalysts that are driving a stock’s price movement.

A catalyst could be anything from a company announcement to economic data releases to major political news. 

No matter what your strategy is, a catalyst can instantly move a stock against you and, frequently, is the sole reason a trader enters or exits a trade.

Stocks For Day Trading

Understanding why a stock is moving can help traders to make informed decisions and even fuel their trade thesis.

No trader wants to be trading in the dark, as surprise or unknown catalysts can easily ruin a trade.

Anything that moves a stock creates opportunities for trades and few things can move a stock like a news catalyst.

If market-moving and stock-moving headlines can affect your strategy, they should be a significant consideration in your stock picking and trade management.

It can be extremely challenging to be one of the first traders to capitalize on a catalyst, but the sooner you know, the sooner you can enter or exit a trade to your benefit.

Conclusion: Picking Stocks For Day Trading

To quickly summarize, selecting the right stocks for day trading requires a comprehensive understanding of a number of key factors. 

Traders should consider volatility, liquidity, their personal trading strategy, profit target, risk tolerance, and catalysts when making decisions. 

By taking these factors into account, you can increase your chances of success in the markets and, hopefully, achieve your financial goals.

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Austin DeNoce

Austin DeNoce is a writer, personal investor, and entrepreneur who is focused on trading and investing education for macro, crypto, equities, derivatives, and foreign exchange traders. He graduated from the University of California, Santa Barbara with a bachelor’s in philosophy and carries a deep passion for a first-principles approach to investing and education therein. Austin specializes in topics related to cryptocurrencies and blockchain technology.

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