Warrior Trading Blog

How to Find the Best Day Trading Stocks

Best Day Trading Stocks

Day trading is one of the original “work from home” jobs and right now, the markets are providing plenty of opportunities to make money. But just because markets are volatile doesn’t mean you can start day trading without a plan or purpose.

 To be a successful day trader, you need to find the right stocks, identify a trend or pattern, and plan your entry and exit points.

Strategies that work in docile times also tend to work during volatile periods, however you may need to tweak certain criteria in order to find the best possible trades.

Day trading when the markets make 3% moves every day might seem exciting, but you still need to know what you’re doing. Otherwise, you could find yourself on the wrong end of a margin call.

What is Day Trading? 

Day trading is buying and selling the same security during a single trading period. Traders don’t just buy stocks – options, futures contracts, and currencies all can be day traded.

Day traders often use leverage to achieve their profit goals, however you can still make a living trading stocks without borrowing money. But you do need to be aware of a few rules. 

FINRA has strict guidelines regarding who can and can’t day trade. Known as Pattern Day Trader (PDT) rules, these guidelines restrict day trading to investors with a minimum account balance of $25,000.

Any account with a balance below the $25,000 threshold will be allowed three or fewer day trades in a rolling five-day period. Once a fourth day trade is completed, a PDT flag is triggered and the brokerage firm enacts restrictions on the account (possibly lasting up to 90 days).

Trading with a balance below $25,000 requires you to pick your spots wisely – swing trading might be a better alternative until you reach the threshold.

Day trading still follows the same concepts of any type of investment. You buy when an opportunity presents itself and hopefully sell for more than you purchased. But it’s a much faster paced environment – in fact, many high frequency trading (HFT) firms hold positions for only a few seconds at a time.

Now you won’t be acting on timeframes as tight as that, but day trading does require a “get in and get out” mentality.

Don’t be afraid to take profits early or get out a bad trade if your signal or pattern doesn’t immediately materialize. Remember, hips don’t lie, but charts sometimes do. 

Day Trading Stocks – What to Look For

Once you’ve established a game plan for day trading, you still need to know what signs to look for. Selecting stocks for day trading is a much different process than selecting stocks for your IRA.

Earnings, fundamentals, and long-term projections don’t really matter much when it comes to day trading. You’re looking for short-term signals here; things that will get stocks moving in a hurry.

Here’s a couple important ones: 

  • News Catalyst – Did a biotech firm just report a successful drug trial? Is a prominent CEO stepping down from her firm? Or maybe a toy manufacturer issued a recall on a dangerous product? Any type of big news story will bring traders out of the woodwork and that stock will get extra focus throughout the day.
  • Volume – Arguably the most important element of any day trading operation is volume. Without volume, it’s hard for a particular stock to make the big moves needed to accumulate day trading profits. High volume can also mean an unreported catalyst, so be sure to keep an eye on any stocks with unusual trading activity.
  • Volatility – In volatile times like the coronavirus selloff, day traders can often hit the same stocks multiple times per day. When trading ranges are vast, it’s much easier to identify entry points and execute profitable trades. Volatility and volume often go hand-in-hand – you can’t get high volatility without lots of buying and selling.
  • Low Float – Well, actually you can get volatility without the volume. The “float” refers to how many shares are available to trade. When a stock has a low float, that means few shares are available and liquidity is low. Low float stocks are prone to large moves since it takes relatively few buyers to seize control of the trend. A float of 15 million shares or fewer would be considered low.
  • Pre-market Trend – Sometimes all you need to do is ride the wave. If a certain stock is trending up in pre-market, you have a chance to jump in before the market opens to the public. Once the bell rings, the stock you purchased pre-market could see the trend continue upward as retail traders pour in. As these retail traders push the stock higher, you can take profits and move on to the next trade.

How to Use Scanners to Find Day Trading Stocks 

Gap Scanner

There are over 5,000 securities traded on US exchanges alone. Unless you have an eidetic memory and superhuman speed, there’s no way you can keep track of them all. That’s why day traders rely on scanners like the ones offered by Trade Ideas.

With a scanner, you can search the market for stocks hitting your particular criteria, whether that involves moving averages, technical signals, or a recent earnings report.

One of the best ways to start the trading day is with the Premarket Gap Scanner, which looks for stocks (with predetermined volume and price levels) that are gapping up in morning trading.

These stocks are usually the best ones to hit for early momentum trades. Day trading without a scanner is like going to the beach without swim trunks – you’re going to get burned.

And possibly laughed at.

Example

During the coronavirus pandemic, airline stocks such as American Airlines (AAL) presented a ton of day trading opportunities. On March 16, a premarket catalyst was announced – the airline industry was seeking a $50B bailout.

Additionally, JP Morgan cut its AAL price target and the company announced it would cut 75% of its international capacity. This caused volatility on AAL to spike drastically and the stock was stopped twice on circuit breakers during the day. 

An experienced day trader would buy AAL premarket on the news that the airlines were cutting costs and expecting to receive government aid. AAL opened at $12.41 and twice ran into resistance at $15.43 in the mid-afternoon.

At this point, the trader could exit the trade for a nice profit. That’s a 20% gain in just a couple hours! 

Bottom Line 

Day trading is an exciting way to make a living, especially during periods of intense volatility. But day trading is still a job and like any job, you need discipline and skill to be successful.

Always have a trading plan, access to tools like scanners and advanced charts, and the demeanor to not let your emotions get the best of you.

If you have the right tools and mindset, day trading could be a lucrative way to work from home permanently.

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