Best Stocks to Day Trade
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While investors focus on the best stocks to buy now and stay invested for weeks, months or years, day traders are looking for the best stocks to day trade. This article describes 5 ways to find the best day trading stocks with different risk tolerance levels for beginners and experienced traders.
Key Takeaways:
- The best stocks to day trade are those with high trading volume and low bid-ask spreads.
- Knowing about the catalyst of the price action is crucial to estimate if the stock will move on high momentum.
- When day trading, a good broker ensures accurate and fast trade executions.
Below you will find five different ideas on how to find the best day trading stocks quickly every day. The tool used for the scans is Trade Ideas, the most powerful stock scanner developed for day traders. Trade Ideas also has charting, backtesting and automated trading capabilities. Click here to download Trade Ideas and use the promo code DAYTRADINGZ for a 15% discount.
1. Stocks With High Relative Volume
Stocks with high relative volume trade a high volume regarding the number of traded shares compared to the average volume. So, for example, if a stock trades at 5 million shares, it belongs to the high volume stocks, but it is not necessarily a high relative volume stock.
Let’s say during the previous 5 trading days, the stock traded at 10 million shares on average, and on the current trading day, it is at 5 million shares at market close, then it was relatively low volume.
But if the average of the previous 5 days was, for example, at 50,000 shares per day and today trades at 5 million shares 10 minutes after the market open, it is a high relative volume stock.
A stock frequently trades at high relative volume when news is announced or if major technical analysis relevant support or resistance levels have been broken. The stock’s volume and volatility are then often higher, which can be used by day traders to benefit.
How to set up a high relative volume scan:
- Open Trade Ideas
- Open the Channel Bar and select the Unusual Volume scan
- Modify the pre-defined scan if you want to fine-tune the scan
2. Stocks with Significant Price Gaps
When day trading stocks, the overnight gaps belong to the most frequently used day trading strategies. Gapping stocks are easy to identify by comparing the premarket price per share with the closing price per share of the previous day.
A skilled day trader knows how to find stocks with significant gaps quickly, and every beginner can begin studying gappers and the subsequent price movements to build a trading strategy. Stock screeners help to identify gappers quickly and filter them for the most favorable conditions.
For gapper stocks, knowing the cause of the gap is crucial since it makes a fundamental difference regarding the intraday price movements. Will the stock be on high volatility, and will it belong to the trendy stocks of the day? Catalysts can make a real difference.
Earnings announcements often cause high volatility during the first 30 minutes of a trading day, while merges and acquisition announcements only lead to a big gap. Then nothing happens to the stock price all day long.
How to set up a gap scan:
- Open Trade Ideas
- Open the Channel Bar and select the Premarket scan
- Modify the pre-defined scan if you want to fine-tune the scan
3. Volatile Stocks
Focusing on the most volatile stocks is one of those day trading strategies favored by many trading educators. That’s because the price movement is fast, and the stock gains much interest among the community of day traders.
High volatile stocks move fast, and if they do on high volume, many day traders step in trying to participate in the stock price movement, either by going long to sell higher or by going short to buy back lower.
Remember that if you trade stocks intraday using the best online brokers, you can archive better results.
For example, suppose you use a broker that sells your order flow to third parties. In that case, the order might get executed slower than by using a direct access broker who charges some commissions but routes the order directly to the exchange.
How to set up a high volatility scan:
- Open Trade Ideas
- Open the Channel Bar and select the Explosive Winners scan
- Modify the pre-defined scan if you want to fine-tune the scan
4. Momentum Stocks
If you scan US stocks during market hours based on strong from the open on high volume, you can quickly identify high momentum stocks. Those stocks trend for longer by making higher lows followed by new higher highs.
As long the momentum remains, new highs are made. Stocks with high momentum sometimes become parabolic stocks at the end of an up move. Once a momentum stock reverses, it is important to patiently wait until the trend picks up again. Shorting momentum stocks against the trend is often a bad idea.
How to set up a high momentum scan:
- Open Trade Ideas
- Open the Channel Bar and select the Momo-Mentum scan
- Modify the pre-defined scan if you want to fine-tune the scan
5. Low Float Stocks
Day trading stocks with low float has its benefits and disadvantages. The biggest benefit is that stocks with low float can go parabolic once many traders step in to trade them.
At the same time, the most significant disadvantage is that low float stocks are often traded on thin volume.
That means that the bid-ask spread (difference between the best bid and best ask) is often high, and trade executions are often unfavorable for traders, especially if zero commission brokers are used that route the order flow via third parties.
How to set up a low float stock scan:
- Open Trade Ideas
- Open the Channel Bar and select the Short Squeeze scan
- Modify the pre-defined scan if you want to fine-tune the scan
How Does Day Trading Stocks Work
Investors can freely day trade stocks with a margin account opened with a direct access brokerage firm if they want to have control over the order routing or by using a retail day trading platform if the main intent is to day trade with $0 commissions (but the retail broker will sell your order flow).
Day traders typically use either stock news apps or stock analysis apps to identify their favorite stocks to day trade. While news apps typically reveal the catalyst for a momentum-driven price swing, analysis apps typically alert for price spikes faster without letting the trader know why the momentum comes in.
Every day, various stocks show immense volatility on the intraday chart. Penny stocks gap up by 100 percent or more, and large-cap stocks see high relative trading volume after an earnings announcement or the entire market collapses or explodes to the upside after major market news.
Day trading stocks involves buying and selling the position within one trading day. A day trader transmits his order with the broker platform to the stock exchange and receives an instant trade confirmation once the trade is executed. He sees the position added to the portfolio and can close the intraday trade immediately or sell in steps.
A day trader can also short-sell stocks using a broker specialized in short selling. In this case, the day trader borrows the shares to sell them short against the borrowed position and then later wants to buy back the sorted shares at a lower price to make a profit. While easy-to-borrow shares can be shorted easily, hard-to-borrow shares can be located with the specialized broker, but shorting those typically involves borrowing fees charged by the broker for the locate.
The best day trading stocks are those with immense trading volume and volatility. High-volume stocks typically come with a small spread between the bid and ask price, which ensures a better trade execution and fill of the buy or sell order.
Considerations for Choosing the Best Stocks to Day Trade
When selecting your favorite stocks to day trade, make sure to follow some basic rules:
- Determine if the bid-ask spread is small. Otherwise, slippage can be high
- Ensure you have sufficient funds to day trade the stock of your choice at the size you want to trade
- Be careful with margin trading and buying power that goes beyond your funded capital
- Monitor your profit and loss in real-time
- Set stop losses for your positions to have an extra layer of security
- Exit open positions by latest at the end of the trading day to avoid a margin call
Best Stocks To Day Trade Parameter Examples
Based on the daily average price movement combined with high volume readings, a top list of the best stocks to day trade can be determined in advance for the next day or week. This approach has the benefit that the time commitment for evaluating the best day trading stocks is lower, but at the same time, there is the disadvantage that trading volume and momentum can dry out if the reason for the move is not impactful enough. So, you can do this scan either in advance for 1 day or a week and then monitor what works best for you:
NYSE and Nasdaq listed stocks that:
- Have a daily trading range (daily high – daily low) of at least 5% of its price (stock price $20-$80
- Move by at least $3 daily on high volume (even if its less than 5% range) – stock price >$80
- Stocks with exceptionally high trading range today compared to the previous day range – stock price >$5 (no penny stocks)
Best Stocks for Day Trading Summary
If you want an updated list of stocks to day trade daily, use your day trading platform integrated scans, the powerful day trading tool Trade Ideas, or free stock screeners. No matter how you decide, be mindful of choosing an appropriate trading size and practice day trading stocks using a stock trading simulator, which provides a real trading experience with real-time prices, but lets you trade without risk.
FAQ
How to find the best stocks to day trade?
You find the best stock to day trade using a stock screener or stock scanner. This article introduces you to five different scans you can use to find the best stocks for today.
Is day trading stocks worth it?
Yes. Day trading stocks is worth it when done correctly and following a trading plan. The plan includes a stock market scan, sound risk management skills, a trading strategy and a fast broker.
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