Day trading stocks today is dynamic and exhilarating. On top of that, they are easy to buy and sell. With the world of technology, the market is readily accessible. The liquidity in markets means speculating on prices going up or down in the short term is absolutely viable.
Whilst day trading in the complex technical world of cryptocurrencies or forex may leave you scratching your head, you can get to grips with the triumphs and potential pitfalls of Google and Facebook far easier.
This means identifying which stocks suit online trading intraday hopefully won’t be as challenging as it is in other markets.
Before you start day trading stocks, you should consider whether it definitely suits your circumstances.
For example, intraday trading usually requires at least a couple of hours each day. One of those hours will often have to be early in the morning when the market opens. Longer term stock investing, however, normally takes up less time. This is because you have more flexibility as to when you do your research and analysis.
In addition, intraday stock trading returns can exceed those of long-term investing. This in part is due to leverage. This allows you to borrow money to capitalise on opportunities (trade on margin). However, with increased profit potential also comes a greater risk of losses. On top of that, you will also invest more time into day trading for those returns.
You could also argue short-term trading is harder unless you focus on day trading one stock only. This is because interpreting the stock ticker and spotting gaps over the long term are far easier. You also don’t have to rush to make decisions. However, this also means intraday trading can provide a more exciting environment to work in.
One major advantage of CFDs and spread betting over traditional equity investment is the ability to “go short“. There is no easy way to make money in a falling market using traditional methods. Day traders, however, can trade regardless of whether they think the value will rise or fall.
Overall, there is no right answer in terms of day trading vs long-term stocks. Spotting trends and growth stocks in some ways may be more straightforward when long-term investing. Having said that, intraday trading may bring you greater returns.
The trading platform you use for your online trading will be a key decision. Do you need advanced charting? Can you automate your trading strategy? Can you trade the right markets, such as ETFs or Forex?
There are some important decisions to make when choosing your trading platform or stock broker, and many will depend on you and you trading style.
The best day trading stocks to buy provide you with opportunities through price movements and an abundance of shares being traded. This will enable you to enter and exit those opportunities swiftly. These factors are known as volatility and volume. You may be thinking ‘I’ve heard of day trading volatile stocks and volume before, but what does that really mean?’
Volume is concerned simply with the total number of shares traded in a security or market during a specific period. Each transaction contributes to the total volume. If just twenty transactions were made that day, the volume for that day would be twenty.
How is that used by a day trader making his stock picks? Volume acts as an indicator giving weight to a market move. If there is a sudden spike, the strength of that movement is dependant on the volume during that time period.
Put simply, the greater the volume, the more significant the move.
If you have a substantial capital behind you, you need stocks with significant volume. Whilst your brokerage account will likely provide you with a list of the top 20-25 stocks, one of the best day trading stocks tips is to broaden your search a little wider.
That way you can find opportunities that aren’t on every other trader’s radar. Look for stocks with a spike in volume. If a stock usually trades 2.5 million shares daily, but you notice it has traded 6 million shares by 10 am, then this could be worth exploring. If your chosen platform fails to offer a rigorous screener for high volume stocks, utilise these alternatives:
Volatility is concerned with the amount of risk/unpredictability in the size of changes in a security’s value. If it has a high volatility the value could be spread over a large range of values. This would mean the price of the security could change drastically in a short space of time, making it ideal for the fast-moving day trader.
Whereas if it has a low volatility, the security’s value will remain relatively steady, offering less opportunity for a quick profit.
One way to establish the volatility of a particular stock is to use beta. The beta predicts the total volatility of a security’s returns against the returns of an appropriate benchmark (normally the S&P 500).
A stock with a beta value of 1.2 has moved approximately 120% for every 100% in the benchmark, contingent on the price level. On the flip side, a stock with a beta of just .8 has moved 80% for every 100% in the comparative index.
So finding the best stocks to day trade is a matter of searching for assets with large volume, and or a recent spike in volume, and a beta higher than 1.0 (The higher the better). Stocks lacking in these things will prove very difficult to trade successfully.
How you use these factors will impact your potential profit, and will depend on your strategies for day trading stocks. Profiting from a price that does not change is impossible. Buyers and sellers create price movement, a lack of volume shows a lack of buyers and sellers.
Defensive stocks, while normally associated with lower volatility, may suddenly be in demand if a market panic causes a flight to safer investments, so volume and volatility may not always spring up in the obvious places.
Now you have an idea of what to look for in a stock and where to find them. Below is a breakdown of some of the most popular day trading stock picks. The most popular exchange-traded fund (ETF) is the S&P 500 (SPY). Regularly trading in excess of 100 million shares a day, the huge volume allows you to trade both small and large positions, depending on volatility.
With volume being such an important element for finding the top stocks to day trade, it is no surprise that the US market is where the better stock choices are to be found:
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