How to Select Stocks for Day Trading

How to Select Stocks for Day Trading
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Day trading is buying and selling stock within the same day. Traders profit from small fluctuations in a stock's price over a few minutes or hours by purchasing large quantities of shares. The field is very risky and it can take years to acquire consistent profitability. Some techniques can help new day traders select the best stocks for trading. Market conditions can change quickly in the short term so there are no guarantees, but entering a trading session with a solid plan gives you some advantage.

Create a price chart with a long-term intraday periodicity. "Periodicity" refers to the time frame of the chart and how often the price bars update. While day traders may execute positions off short-term intraday charts such as a five-minute periodicity, longer-term charts using one-hour or two-hour periodicities are a good way to get the big picture on recent activity. Any charting software can create this charting template.

Write down a list of potential stock candidates. Day traders like stocks with high volume and large capitalization. This means that the stocks are actively traded so liquidity is good. Stocks that do not meet this criteria may not execute quickly enough as brokers may need to wait to find other buyers and sellers to transact your order.

Enter a stock from your list into the chart and quickly scan for recent trending activity. The "Dow Theory" is an old concept that defines a trend as a sequence of "higher highs and higher lows." If this one-hour chart is demonstrating a pattern of new price highs followed by declines that fail to penetrate the previous low, the stock is trending. Write down the ticker symbol of the stock if it displays this pattern.

Chart and scan all the stocks on your list to narrow it down to stocks with recent trending activity. When complete, you will have a list of potential day trading candidates.

Change the chart's setting to a more short-term periodicity, such as a 30-minute or 15-minute chart.

Chart each of you filtered candidates in this new chart and look for trending activity again. Stocks that are trending in this intermediate time frame have good momentum from two periodicities, which substantially increases your odds for profit. Narrow the list further by crossing off those stocks that are not trending here.

Create a short-term chart such as a five-minute or three-minute periodicity.

Observe the price action in your final stock list as the stock market opens on the day you are trading. If you have the software and computer monitors to support multiple charts, you can monitor many stocks at once.

Trade stocks that are trending on this short-term time frame. Most important, trade in the direction of the trend that is occurring on all time frames. This gives you excellent risk-to-reward ratios. It is possible that the short-term trend will help to continue the longer trends and your day trades may be eligible for overnight holding. It is not uncommon for day traders to hold on to a position for several days if all the trends continue.


  • If you need a good list of potential candidates, simply turn to the hundreds of stocks that make up the S&P 500 index, or look just at the 30 stocks included in the Dow Industrial Average. These are all highly liquid stocks that are popular with day traders.


  • Day trading is extremely risky. Always practice with a virtual trading account until you achieve consistent profits.