Traditional investors search for firms that they believe will develop over a number of years, but the greatest stocks for day trading may not necessarily need to continue rising. In reality, volatility affords day traders exceptional profit potential.
Over a period of a few days, the price of a stock that is volatile can fluctuate substantially. When you buy the stock at a low price, you might profit by selling it when its value increases. Even savvy day traders can capitalize on chances by betting against companies they feel will decline in value.
Obviously, volatility is not the only factor to consider when selecting the best stocks for day trading. Holding on to a company's stock with long-term growth may not create immediate gains, but it can result in greater returns in the long run.
How Does Day Trading Work?
There are numerous strategies for day trading the market. However, the most effective day traders will evaluate probable market-turning events in order to determine entry and exit points.
Day traders frequently employ technical analysis throughout the day to discover prospective trading opportunities. Utilizing chart patterns and technical indicators, the technical analysis identifies possible market-turning periods where buyers and sellers may converge.
There are a variety of products accessible for day trading on the global foreign trading market. This includes buying actual stocks or utilizing leveraged instruments such as futures, options, and contracts for difference. CFDs or Contracts for Differences, given by brokers, are the simplest and most cost-effective way to trade on the global market.
CFDs are products that enable you to speculate on the direction of a market's price. This means you have the ability to profit from both rising and falling markets, which is vital for a day trader seeking to capitalize on short term market movements. Ultimately, markets will fluctuate.
Additionally, day trading the market with CFDs enables leveraged trading, and this indicates that you might purchase a stock derivative without putting up the whole world trade value.
Day trading stock selection is one of a trader's most important abilities. Trading involves purchasing and selling stocks on the same day and ensuring liquidity and a high-risk, high-reward trade for each stock.
Before embarking on a career as a day trader, it is essential to learn how to day trade and how to carefully select stocks that can be profitable for day trading. Sourcian is a dedicated platform for the recommendation of the best manufacturers. Your sourcing journey starts right here at sourcian.
Here are a few tried-and-true characteristics of stock selection that traders can adhere to in order to avoid market failure:
Trending Stock
By Trending Stock, we refer to the stocks that command the most interest on the stock market. A rise in interest causes an increase in the stock of traders, which in turn raises the traded volume and volatility, resulting in extreme price fluctuations. As an investor, you should evaluate the Pros and Cons of Tech Stock investments before opting to invest.
Volatility Analysis
Volatility is well acknowledged to be the staple food of day traders, and no day trader could ever profit from trading stocks that move sideways.
Bollinger Bands are one of the strongest technical tools for analyzing price-to-volatility action.
The Bollinger Bands, which were named after John Bollinger, are a useful tool for analyzing market movements and their anticipated volatility.
News
As stated in point 1, a stock that is trending is highly likely to encounter trading activity. However, keeping abreast with recent events assists traders in comprehending market sentiment.
Positive news regarded favorably by the market results in stock price increases, and bad news decreases the stock price.
The best aspect of day trading is that expert day traders can profit in both markets. Review free weekly forecasts to obtain an update on stocks and stock market developments.
Increase in Traded Volume
When selecting stocks for day trading, most individuals just consider the growth in total volume; however, the secret lies in selecting stocks with an increase in traded volume.
Traded Volume and Delivery Volume make up two portions of the total volume. Traded volume is the number of traders who squared off their positions by the conclusion of the trading day, whereas delivery volume is the number of deliveries accepted in the cash market.
A day trade occurs when an equity position is opened and closed inside the same trading session. Investors and swing traders view trades differently than day traders. The best stocks for day trading are entirely apart from regular investments. Know beforehand that day trading is a high-risk, high-stress endeavor. Day trading needs significant study and research, so it is not for everyone.
The greatest stocks for day trading possess two crucial characteristics: liquidity and volatility. The stakes in day trading are so high that a few pennies in price movement can cost a great deal of money. Higher volume correlates to more demand and narrower spreads, so traders know they can quickly exit their positions without losing more than a few cents off the market price. High-volume stocks are, therefore, highly appealing for day trading.
Tesla Inc. [NYSE: TSLA]
Tesla Inc. has defied the odds and surpassed market forecasts for the past ten years. Wall Street's dismal forecasts were demolished as Tesla Inc.'s revenue increased by about 40% to around $9 billion, defying expectations.
In addition, Tesla Inc. is one of those companies that will increase your capital wealth and make you pleased to be an active participant in environmental improvement and preservation.
With Tesla Inc. being in the news more frequently than ever before, a single positive or negative rumor can cause a substantial price movement, making it one of the finest stocks to own for day trading.
The exponential rise in the daily volume of Tesla Inc.'s stock indicates a growing interest among investors. According to the data, the stock's volume has increased by around 200% in one month.
Apple (AAPL)
Apple (AAPL) is one of the most popular day trading stocks because it has undergone five stock splits.
A stock split occurs when a firm issues additional shares to reduce the overall share price while maintaining the same market value. This means you can trade on a trillion-dollar corporation at a considerably lower price, making it simple to purchase common stock during the day trading.
Most individuals are familiar with Apple and will be aware of when new products are released. This understanding will prove handy in trading, as Apple's stock price can climb prior to the announcement of a new product as investors anticipate the resulting enthusiasm.
Roku (NASDAQ: ROKU)
Roku sells digital streaming gear and systems for televisions. With Roku, users may gain access to numerous streaming services, like Netflix, Disney+, Hulu, Amazon Prime, HBO Max, and more. Clearly, streaming will not disappear any time soon.
This year, Roku's volatility and volume have increased, attracting the attention of day traders. The average beta for this stock is 1.76, and the average daily volume is 4.6 million shares.
The stock price of Roku has surged considerably over the past year, increasing by more than 100 percent. This growth, combined with the asset's volatility, makes it particularly attractive to day traders.
Nokia (NYSE: NOK)
Nokia is a telecommunications corporation that manufactures computer hardware and electronics. Nokia, with its headquarters in Finland, was founded in the 19th century, although it is best recognized as a pioneering mobile phone manufacturer.
Nokia is a reasonably inexpensive stock and sometimes even qualifies as a "penny stock," a firm with a share price of less than $5. It has transitioned from manufacturing phones to network hardware and 5G infrastructure, a far cry from its heyday in the late 1990s.
Due to its status as a legacy brand and one that many traders grew up with, it frequently attracts the attention of retail or casual traders during volatile periods. This was true during the meme stock saga in 2021, indicating that it is a stock that day traders can choose to be long or short.
NVIDIA (NVDA)
NVIDIA is a well-known firm whose CPUs and graphics processing units are widely used in electric vehicles, cryptocurrency mining rigs, gaming consoles, and the vast majority of electronic products.
Due to its huge trading volume, it is one of the most popular stocks to day trade. More than 62 million shares are exchanged daily, over ten times more than Amazon's shares. This turnover generates intraday movements that day traders can capitalize on.
The stock is also quite inexpensive compared to comparable technology companies. Therefore, NVIDIA stock day trading may be for you if you have a little day trading account.
Etsy (NASDAQ: ETSY)
Etsy (NASDAQ: ETSY) is an online foreign trading marketplace where individuals can sell handcrafted or customized items. Since its founding in 2005, it has grown to become the largest online retailer of vintage and unique things.
As a result of this pandemic, a large number of people learned a new skill or opened their own internet store. Similarly, the significant increase in e-commerce during global lockdowns caused Etsy's stock price to surge.
Similar to AMD, the stock has considerable volatility. It is not uncommon for prices to fluctuate by 5% in a single day, which creates several trading chances.
Disney (NYSE: DIS)
Disney (NYSE: DIS) is an additional outstanding stock for intraday trading. It has an average volume of over 8 million and a beta of 1.20, indicating above-average volatility.
While many businesses struggled during the COVID-19 outbreak, Disney performed exceptionally well.
Despite having to close its theme parks, Disney was able to recoup its financial losses due to the success of its Disney+ streaming service.
Disney+ began in November 2019 with over 100 million customers already. Disney also controls Hulu and ESPN's streaming services. Thus the rise of at-home entertainment benefited them significantly. These streaming services continue to be more popular than ever.
This year, Disney stock has steadied out somewhat, but it still exhibits substantial intraday volatility. Twilio is a 2008-founded technology business headquartered in the San Francisco area, and they specialize in enterprise-level cloud services that enable web-based phone and text communication.
Twilio will continue to attract investors' interest as this technology's prevalence increases. Currently, its stock is up an amazing 45 percent from this time last year.
They are experiencing record-breaking profits and hope to maintain this positive trend. Their daily average trading volume of 1.5 million shares is anticipated to continue to expand. Their monthly beta of 1.46 indicates a favorable level of volatility for day trading.
The communication capabilities provided by Twilio should constantly be on a day trader's radar.
Day Trade Strategies
A trading strategy is vital for surviving in the day trading arena, and the fact is that a range of tactics is accessible for application. When you begin day trading, you may trade all of them before focusing on the one or two that work best for you and reflect your personality.
1. Trend Trading Strategies
Trend trading tactics are the most prevalent among day traders. This entails recognizing an upswing where persistent buying has occurred previously and continuing to purchase shares while the trend continues.
Indicators such as moving averages are particularly helpful for identifying market trends and sticking to them.
When the price is above this moving average, the market is dominated by more buyers, and the trend is upward. In addition, because algorithmic traders and day traders extensively utilize this indicator, you can observe that buyers reentered the market at the moving average.
This is because the indicator also provides levels of support at which day traders may consider buying additional shares as an entry into the main trend at the moving average line. Day traders most frequently use moving averages calculated using the exponential moving average of 20 or 50.
Some day traders will additionally employ additional indicators that indicate overbought conditions in order to exclude trading chances with a higher probability of success. Trend techniques can also be employed to scalp tiny price changes.
Countertrend methods are very common among day traders and are especially advantageous when the market is more range-bound and not trending. Nonetheless, the majority of counter trend traders will continue to follow the longer-term trend on a higher period.
For instance, day traders may opt to trade a 15-minute countertrend move that is in the same direction as the trend on the 1-hour chart. This is another method for selecting day-trading stocks with a better reward-to-risk ratio, where you can earn two or three times what you risk.
The stochastic oscillator is a frequently employed indicator for countertrend day trading methods, and this is because the indicator is used to identify market reversal divergences.
Above marked in green are reversal divergences for countertrend moves. Bullish reverse divergence and bearish reversal divergence are the two types.
Bullish reversal divergence happens when the price decreases while the stochastics increase.
Bearish reversal divergence happens when the price increases while the stochastics decrease.
Divergences in the price of a stock may suggest that a price trend is losing momentum and may reverse, resulting in a countertrend move if left unchecked.
3. Reversion to Mean Trading Strategies
When a stock is trading within a trading range, reversion-to-mean trading tactics are most often employed. While most traders and investors prefer to trade stocks that are moving, there are instances when market sentiment is so low that the price is restricted inside a trading range.
As it is necessary for day traders to put their funds to work each day, the ability to trade all possible market conditions is critical. Bollinger bands are a common indicator for reversion to the mean trading strategies when a stock is in a trading range.
Bollinger bands aid in measuring the market's volatility. However, the upper and lower bands can also serve as potential support and resistance levels at which the market may shift.
In a reversion to the mean trading tactics, day traders sell a stock when it reaches the top of the Bollinger band and buy it back when it reaches the middle line, which is often the 20-period moving average. If the price falls to the lower Bollinger band, day traders would trade the stock and return it to the middle line.
In essence, traders return the price to the 20-period moving average, representing the market's mean.
4. Gap Trading Strategies
Due to the fact that stocks do not trade 24 hours a day, there are frequent price gaps between market close and market open. Day traders frequently trade these gaps, as they develop when traders scramble to enter or exit positions at the opening bell.
Gap trading is one of the easiest methods to get started if you want to learn how to locate stock for day trading. This is due to the fact that finding the gap requires no technical analysis or indicators.
There are numerous opportunities for day traders to exploit. These consist of the following:
Continuity holes
These are stock price gaps that occur in the midst of a trend, and these can serve as evidence that the general trend is positive.
Exhaustion gaps
These gaps in a stock's price occur at the end of a trend and indicate that the market will not continue in its previous trajectory.
Breakaway gaps
After a trading range has been created, these gaps indicate a breakout from the range-based pattern.
5. News Trading Strategies
Following the news is a popular technique for learning how to choose stocks for day trading. As stocks represent a public corporation, market-moving news announcements occur frequently, and this may contain information about product debuts, management changes, sales figures, hedge fund manager holdings, etc.
There are numerous ways to access the most significant news announcements about a stock you are trading. Swing traders and individuals learning how to day trade penny stocks are also fond of news trading tactics. This is due to the fact that penny stocks represent considerably smaller enterprises that might experience large price fluctuations in response to the news.
Final Thoughts
The greatest stocks for day trading are diversified across industries, and this is excellent news for all investors. The greater your diversification, the more you can diversify your portfolio. You can bank on another to recover if one industry falters, so diversifying your wagers is prudent.
Unlike other investors, you do not always wish to select stable stocks. Use volatility to your advantage. Yes, it will require more effort, as making money as a day trader requires paying close attention to stock price fluctuations and daily news headlines. However, if you have honed your tactics, you can earn substantial money by investing in these stocks.
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