How to Pick the Right Stocks for Day Trading?

How to pick stocks for day trading? There are a few things to look out for when choosing which stock you are trading with. The stock should have enough volume, volatility and it should not be facing any major news that day.

Day trading has become more popular over the past years since it is possible to do for almost anybody with some extra money and internet connection.

When picking the right instrument to trade, the first things that come to mind are stocks, indexes, and currencies. In this post, we are going to focus on stocks, and what to look for when searching for the perfect stock to trade with.

Does the stock have enough volume?

Having enough volume when trading is crucial if you want to succeed in your trades. Volume means how much buyers and sellers are trading the stock. A lot of volume means the stock is being traded often; but if the sells and buys on the stock only happen rarely, and with small amounts, the volume is low.

If you enter a position and it is looking good, if there are no people buying the stocks back from you, it might be very difficult and frustrating when you can’t lock in the profits.

The other problem, if the stock doesn’t have enough volume, is that price movements can be small; they don’t happen often, or they can be huge at a time. If someone places a market order on a stock where there is no volume, the price can have big movements in just a matter of a few seconds. It is not a good place as a trader to try predicting these moves.

Look for stocks that have a lot of volume. Stocks that are trading every minute, not just once per hour. This way you can make sure, that there is always someone to buy the stocks back from you, and you can lock in the profits at a desired level.

Does the stock have enough volatility?

Volatility is another thing to look for in a stock you wish to trade. If the stock doesn’t have volatility, which means the price doesn’t move at all, or moves only slightly, there are not many opportunities to make money with it.

When the stock has a lot of volatility, the price is moving a lot. This brings opportunities for traders. Combining a stock which has a lot of volume and volatility, with a clear trend, it will increase the chances of success for your trades.

Is the stock in a clear trend?

Trading a stock that is moving on a clear trend can be a lot easier to trade, compared to a stock that is moving on a sideways trend.

Trend following strategies are one of the most popular trading strategies, so trading with a trend could offer a higher win rate than trying to predict the end of the trend or trying to trade against it.

If the stock has enough volume, the price has enough volatility and is in a clear trend, this is one of the best scenarios for traders to be around. This will maximize the chances of success when the wind if in your favor. Trade the trend, trading against it is very difficult as well as predicting the end of it.

Does the stock have any big news coming up?

If the stock is facing some major news, it might affect the price either way. Trading a stock that is expecting to get some major news such as an earnings report or annual report can be a hard spot for traders.

Even if the news is good, the price can go down. The trend in situations like these doesn’t matter so much. It is better to trade with the trend, not trying to trade the news. Investors and stock prices are unpredictable, especially when big news come out.

Indexes as an alternative to individual stocks

Sometimes other things such as indexes or currencies might be a better alternative to stocks to trade with. Some reasons listed below.

Big indexes have a lot of volume. You will get out of the positions much easier, when volume is not a problem, like it can be for some smaller, less traded stocks.

Indexes have smaller volatility, but they are often traded with leverages. This way small movements can cause you to win or lose more.

Trends in indexes can be more easily spotted since news that could affect one company will not affect the whole index so hard. Probably.

Other things to consider

If you plan on taking longer trades on stocks, known as swing trading, you might want to take a little bit closer look at the company in general. Look into their numbers and balance sheets, if you plan on being on board for longer than one day.

Don’t just rely on chart patterns on these. The company might also have some big news coming out in the following days, weeks, or months. Depending on how long you plan on staying in the trade, look at these things to minimize your chances of a loss.

Final words

Day trading, even though it has become more popular, it is still difficult to be profitable in. If you decide to trade with individual stocks, look at the things mentioned earlier, before you enter the trade.

If you are new to trading, start with paper trading, which means trading with demo-accounts. Not with real money. Day trading has a lot of risks, especially if you are new to it. It has a lot of potential as well, but some estimates say that 95% of day traders lose money. It is not for everybody.

Anyway, hopefully this was helpful to you, have a nice day. More day trading-related posts can be found here.

This is not financial or investment advice. Always do your research before risking your hard-earned money. Keep in mind that some estimates say that 95% of day traders lose money.