How to find the best day trading stocks


Stocks are a popular option for day trading investors. We take a look at what makes a stock ideal for day trading and highlight the best stocks to trade right now.

What makes a stock suitable for intraday trading?

The objective of intraday investors is to open a position on a stock that can generate a return on the same day, so they need to find stocks that are traded a lot and that can experience notable price movements in short periods of time. As the Lloyds example below shows, day trading consists of opening a position on a stock and being able to make a profit in just a few minutes or hours, or at the latest, at the end of the same trading day.

Most large and mid-cap stocks typically move only a few percentage points each day, so intraday investors try to identify the most volatile stocks and often use leverage to increase the potential gains (but also losses) that can get. Some intraday investors choose to trade one or two stocks for weeks, while others trade different stocks each day, depending on the big picture; for example, those about which news or earnings are published, or those that are likely to be affected by political or economic events.

In both cases, intraday investors want to trade stocks that have the same characteristics: volume, volatility, liquidity, and range, all of which are necessary for a stock to be an excellent option for intraday trading.

Volume and liquidity

Both volume and liquidity are key for intraday investors, but are often viewed the same. Volumes represent the number of executed trades that have been completed, while liquidity represents activity in the order book – the most liquid stocks typically have books full of orders at various buy and sell prices. If a stock has high volumes, it means that an intraday investor has more opportunities to open and close positions, as there are many others willing to buy or sell. If it is a liquid stock, it means that many orders have been placed (but not yet executed) for a stock at various prices, which means that there will continue to be demand for the stock even though the price of the stock moves by a significant amount for a short period of time. Therefore, both volume and liquidity are essential.

The idea that volume and liquidity are intertwined is often misunderstood. Low trading volumes and high liquidity suggest that there is low demand for the stock at its current price but that there are many people lining up to buy or sell if the price moves in the future, while high volumes and low liquidity suggest there is a lot of appetite for the stock at its current price but few orders at higher or lower prices.

Most large and mid-cap stocks can offer enough volume and liquidity for intraday investors to trade, but they still have to look for the most traded and liquid stocks if they want the best chance of making a profit.

Others also try to spot any unusual activity that they can capitalize on, such as looking for stocks that have experienced a sudden surge in volume. The best way to find stocks with adequate volume and liquidity is to use a stock filter that tracks the most traded stocks each day.

Volatility and range

Volatility and range are also key for intraday investors, as they can define the amount of profit or loss that an intraday investor may experience. A stock has to be volatile if an intraday investor wants to profitably open and close a position in just a few minutes or hours, and the share prices of some stocks tend to move at a much higher daily average than others.

For example, income stocks, such as utility companies, tend to experience very small daily movements, while mining or oil companies tend to experience more severe fluctuations due to external factors, such as metal or oil prices. . However, it is important to note that while the potential gains are greater the more volatile stocks are, the potential losses also increase, so investors will need to find a balance that suits their particular risk appetite.

Most large and mid-cap stocks tend to consistently trade between a high and a low for long periods of time, with the high indicating price resistance and the low representing price support. Range can help identify stocks that might be about to enter new levels or be used to calculate the risk associated with each one: one with a narrower range is likely to experience smaller daily price movements, while a wider range suggests that the price may experience larger price movements. Once again, you can use the stock filters to find the stocks that offer the desired range and find the ones that fluctuate between a high and a low.

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