How to pick the best stocks for day trading

Day Trading

Day trading can be highly rewarding if you know the rules of the game. However, stock research is one of the most difficult parts of it. I've rounded up the top tips on how to pick the best stocks for day trading.

This content should be used for informational purposes only. We aren't investment advisers and you should not rely on this information to make investment decisions.

Day trading is the process of trading on a daily basis, opening and closing positions over the course of a day. Many people prefer this type of trading because it seems relatively easy and you can make a profit every day.

However, your positions are often based on speculation and as a trader you should be aware of the risks. Stock prices are constantly fluctuating and you should be prepared to close your positions at any time.

Below, we'll examine how to go about picking the best stocks to day trade.

1. Get up at dawn

It might sound crazy, but it's a good habit to get up early every weekday.

When it comes to trading, the action starts early and you need to be prepared before you begin your daily work. You can forget about the 9:30-to-19:00 daily grind in a suit and tie - now you're a trader and it all depends on your strategy, your skills and your wisdom. Basically there are thousands of different stocks out there and this means you'll need quite a bit of time to research them and assess their data.

Therefore, it it makes sense to get up early to do some research and prepare your plan for the day. The more informed you are, the more predictable the outcome of your decisions will be.

2. Stock volumes and liquidity

In order to be a successful trader, it's important that you pick the best stocks in the market.

We need to discuss two very important characteristics of the best stocks: their liquidity and their volume. For starters, a liquid stock is on that can easily be bought or sold. This is a great advantage when it comes to day trading. You don't want to end the day with shares that you can't get rid of. In addition, the volume of an asset, or its market capitalisation, which shows the quantity of stocks available is very important.

Higher volumes = easier trading

A useful tool: the TVI (trade volume index). This is a key tool that indicates when a stock is bought and when it is sold. It can easily be used to track the "supply and demand" of a stock.

The TVI index detects whether a stock is bought or sold on the tick database. The TVI tracks the total volume that occurs on both the buy and sell sides. So if the trade volume index is going up, that means more people are buying on demand and the stock price is going up. Conversely, if the trade volume index is falling and the stock is plummeting, then a stronger downtrend is in play.

The trade volume index is heavily used by day trading pros. This is because active traders are mostly concerned with stock performance at key levels and need to make quick decisions. Long-term investors are less concerned with intraday data and focus their attention on how a stock closes at the end of the day.

3. The average volatility of a stock

Generally speaking, volatility is the rate at which the price of a stock fluctuates and changes. This indicator shows the risk associated with the purchase of a specific stock. Smart and knowledgeable traders prefer to trade stocks with medium volatility (overnight price change is under 4%).

Highly volatile stocks tend to be extremely unpredictable and only the most experienced traders choose them. In addition, they are not very liquid, so they should be avoided.

A useful metric: the Beta is a metric used in fundamental analysis to determine the volatility of an asset or portfolio relative to the overall market. The overall market has a beta of 1.0, and individual stocks are ranked based on their deviation from this market.

A stock that swings more than the market over time has a beta greater than 1.0. If a stock is moving less than the market, the stock's beta is under 1.0. High beta stocks tend to be riskier, but offer the potential for bigger profits. Low beta stocks have less risk, but generally offer lower returns. Therefore, beta is often used as a risk-reward measure; it helps traders determine the level of risk they are willing to take to obtain the return corresponding to that risk.

For example, if a stock of the French CAC-40 index has a positive beta of 1.29 and the CAC-40 varies by 10%, then the stock should theoretically vary by 12.9%.

To calculate a stock's beta, you need to know the covariance between the stock's return and the market's return, as well as the variance of the market's returns.

beta = covariance (daily returns over the stock's history; daily returns over the index's historical benchmark)

divided by variance (daily returns over the index's historical benchmark)

On the XTB website, you can directly see the beta of each share:

Beta of Apple shares

Apple Inc. stock

4. Sector monitoring

Typically, stock prices move in the same direction, as they're correlated with their sector or index group.

How does this benefit you?

If you trade stocks and the industry moves higher, you can easily predict that your stock price will also rise. Being an expert on a particular sector or industry and its relevant indices is a great advantage. These stocks are both reliable and predictable, saving you valuable time and effort.

On the other hand, don't follow the herd if you don't think you should. Often, following what others are doing is an inseparable part of our genes and of human nature and part of the survival instinct of animals, but you're a trader, not an animal.

For example: the price of a currency begins to fall and traders begin to sell. The more they sell, the more the price drops. The more it drops, the more people keep selling. This process can often be the result of panic, not fundamental data. Others will suffer financial losses and hold onto their positions, which can lead to even greater financial losses.

What do good traders do?

They make smart decisions. If you are a poet, emotions are a great asset, but if you want to be successful in day trading, follow your strategy and your plan - not the herd. Open and close positions according to your tactics and expectations.

5. Take advantage of pre-market movements

The pre-opening of the London Stock Exchange takes place between 7:15 and 9:00 in the morning. Meanwhile, traders are preparing their strategy for the day and orders are piling up in the stock exchange's computer system.

What are the most wanted stocks you want to pick during these pre-market conditions?

First, choose securities worth more than 5 pounds. And go for stocks that trade in high volumes. As you know, the greater the volume, the greater the liquidity.

Track and observe the 30-day average volume, which is handy if you have found a stock that is priced above £5 and trades at high volumes. This indicator will give you an idea of ​​the evolution of the share price over the last 30 days. So you are better informed. Check out the major stock indices (FTSE 100, DAX, Russell 300, S&P Global, Dow Jones, NASDAQ, etc.) rather than a specific industry or sector.

Stock prices tend to follow broader market movements. Choose a great trading platform that offers you an array of pre-market moves.

6. Be patient and plan out your trading strategy

Last but not least, what do all successful traders have in common? Patience and organisation.

And the following might sound strange, but good traders don't trade every single day. For example, they will stay out of the market if they don't see any worthy opportunities.

Don't trade if it goes against your strategy or trading plan. Acting impulsively could lead to your downfall. To succeed, you need to be able to plan your actions in advance and be prepared to implement your trading strategy.


As you can see, there are a wide range of strategies, tools and ways to pick the best stocks of the market. Even in the case of day trading, becoming an expert is a thorny and difficult road that can take months and years to master. When you're starting out, equip yourself with both patience and determination.

Learn to be more organised and to plan ahead; wake up earlier than the market opens. If you want to find the best stock of the day, choose medium volatility stocks and make sure they are highly liquid. Make sure to monitor how other stocks in that sector are doing. Don't follow the masses if you don't have to or if it's not part of your trading plan. Take advantage of pre-opening market movements and be patient!

Recommended stock broker

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Our opinionTrading without commissions, but with a very limited choice of 2,000 shares and 16 ETFs.
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