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Day trading involves a number of challenges, among the first of which is finding stocks to trade. Not every stock is equally suitable for day trading on any given day in the market. Choosing the right stocks to watch for trading opportunities is key to success as a day trader.
So, what stocks are good for day trading? We’ll explain what makes a good day trading stock and how to find them consistently.
The Goal of Day Trading
The goal of day trading is to profit off of intraday changes in the price of a stock. To accomplish that, the price of a stock has to change throughout the day. More than that, the price has to change in ways that work with your day trading strategy.
When thinking about what stocks are good for day trading, keep this goal in mind. Most of the criteria you’ll look for when choosing trading candidates revolves around intraday price action.
Day Trading Stocks Change Daily
There is no static list of day trading stocks that you can create and then trade every day. Which stocks are good for trading can vary widely from one day to the next.
For example, say a stock is experiencing huge price swings one day in response to news. There may be excellent trading opportunities for that stock on that day. However, the next day, the news has passed and there’s very little movement in the stock’s price. It was a great day trading stock one day, but the next there are no opportunities in it.
For this reason, most day traders create a new list of potential stocks to trade at the start of each day. Some traders even refresh their list of good stocks to trade partway through the day.
What Makes a Good Day Trading Stock?
With all of this in mind, what should you be looking for in day trading stocks? There are two key things to consider: volatility and liquidity.
Volatility is a measure of how much a stock’s price changes in the course of a day. A stock that ranges 10% between its intraday low and intraday high is considered to have high volatility. A high volatility stock is much more likely to present opportunities for trading than a low volatility stock that trades in a tight 1% range all day.
In general, the more intraday range a stock has, the better a candidate it is likely to be for day trading.
Liquidity in the context of day trading is the same as a stock’s intraday trading volume. Stocks for which more shares are being bought and sold have higher liquidity, while stocks without much trading action have low liquidity.
Liquidity matters because traders need to be able to get in and out of positions quickly. Selling shares instantly at the current bid price is no problem if there are plenty of active buyers for a stock. On the other hand, if a stock has low liquidity, you could end up having trouble exiting your position at the current bid.
Trading Style Fit
There’s one other thing you should consider beyond just volatility and liquidity, and that’s whether a particular stock suits your trading style. Not every stock will match your trading style, even if it has a lot of volatility and plenty of liquidity.
For example, say your trading style focuses on mid-cap stocks and avoids trading around earnings reports. A mega-cap stock that’s experiencing a 10% intraday trading range and twice its average daily trading volume in response to an earnings release still won’t make sense for you to trade. Stick to your strategy when choosing stocks to day trade.
How to Find Stocks to Day Trade
Now that you know what makes stocks good to day trade, how do you find them?
The simplest way is to look at lists of the biggest intraday gainers and losers. These stocks by definition have large price ranges and a lot of volatility. They usually also have higher than average trading volume. You can find lists of top moving stocks for free on many trading sites or through your broker’s trading platform.
A more targeted way to find stocks to day trade is to use a stock scanner. These enable you to input custom criteria related to volatility and liquidity. For example, you can search for stocks that are up or down at least 5% from their opening price and which are trading with at least 1.5 times their average daily volume. If your trading strategy is targeted towards, say, mid-cap stocks, you can also restrict your search to stocks within a specific market cap range.
There are a number of free stock scanners online, and you may have access to a scanner through your broker’s trading platform. There are also many paid stock scanners built specifically for day traders.
Conclusion: Stocks For Day Trading
Good stocks to day trade have high volatility and high liquidity. They should also fit your trading strategy. In addition, the list of which stocks offer day trading opportunities changes daily. You can create a list of potential stocks to trade by checking top movers lists or using a stock scanner at the start of each trading day.