With thousands of stocks you can trade on any given day, the sheer number of options can feel a bit overwhelming if you are not experienced. Don’t worry, finding the best stock to day trade is not rocket science, but it does require quite a bit of work and research. In this article, we’ll explain the 7 basic approaches to choosing the best stocks to day trade.
1. Start Early With Pre-market Movers
Seriously, an early start is a must for successful day trading. The market is getting faster every day and starting at 9:30 AM is really not an option anymore. Regardless of what strategy you are using, it’s a good idea to start your prep work at 8 AM. This will give you an hour and a half to do your research before the market opens. If you are in any day trading chat rooms, you can get ideas from other traders as well.
So what exactly should you look for in stocks during pre-market? First of all, you should check the stock’s price and the volume of trade. It’s a good idea to choose stocks worth more than $5, although trading stocks with lower value is also an option. Furthermore, look for stocks with somewhat heavy volume, but also check the volume average for the past month.
2. Focus on Stocks With High Volume
If you have a large amount of funds at your disposal for day trading, you will need stocks with high volume in order to enter and exit the trade without problems. Your brokerage firm will most likely have a most active list. This is definitely a good way to start searching for this type of stocks.
However, if you want to find stocks that are not followed by every investor, you’ll need a scan that’s a little broader. For a start, you can use Barchart or The Street to find a broader list of high-volume stocks.
3. Build Your Own Watch List
Developing your own list of stocks you want to follow on a daily basis will save you a lot of time and energy. Due to the sheer number of stocks on the exchanges, it’s a good idea to focus on specific industries or sectors. Precious metals, banking, retail, internet, and pharmaceuticals are some of the most popular.
You can choose to follow one sector or a couple of them. Once you decided on which sectors you are going to follow, give yourself at least one month (a couple of months would be better) to watch the price movements of stocks within the sector. Don’t make your watch list too long, though. Since you’ll be tracking the stocks manually, watching more than 10 stocks within a sector might be too many.
4. Review Your Trade History
Before you start looking for advice elsewhere, reexamine your own trade history. You’ll be able to discover mistakes you made in the past and improve your approach. You might even find your “lucky stock”, a stock you are always successful with.
5. Social Media
Some investors prefer avoiding social media in an effort to make cool-headed decisions based only on the price and volume of a stock. However, it definitely doesn’t hurt to scan social media.
StockTwits is a platform that provides insights into the thoughts of investors about each security. If you go to their website, you’ll see a list of stocks which are trending right at the top of the homepage. These will mostly be the same stocks you can see in the news. However, in some cases, you’ll see members talking about a stock move before it appears in the news. You can also use the popular list on StockCharts which will show you which stocks are popular with their user base.
6. Focus on the Earnings Calendar
If there is one thing you can be sure of in day trading it’s that the report of earnings always brings increased volatility. Many trading platforms provide an earnings calendar that tells you which companies will publish their earnings reports during the following week. This way you can start watching stocks before the earnings report is published. However, we don’t recommend placing a trade before the report is published since this would be just another form of gambling.
Morningstar, Earnings Whisper, and Yahoo Finance are some of the sites that publish earnings calendars.
7. Keep it Simple With One or Two Stocks
Every approach we have talked about so far requires you to follow multiple stocks and react quickly based on a number of factors. If this is not something you can be comfortable with, you can try a minimalistic trading style and focus on just one or two stocks. In this case, you have two choices. You can either follow the most popular stock or your personal favorite based on your past trading performance.
This approach has many advantages. It takes less time and effort to follow a small number of stocks, and you can take your time to analyze the trading pattern and technical indicators for your chosen stock.
Various successful investors use different approaches to choose their stocks for day trading. There is no universal approach that will work in every case, but with our 7 tips, you should be able to understand the basics and start building your own strategy.