The best day trading stocks must meet specific characteristics to enable traders to swiftly get in the position, generate a profit and close the position within the same day.
Such stocks are a dream to have in their Watchlists.
We will provide easy process to find them and share our recommendation list based on our year long research.
Best Day Trading Stocks: FINRA Day Trade Rule
FINRA sets the rule for Day trading that makes it difficult for most traders to do this activity.
We highlighted the details of the rule in this article and provided a nice trick though not perfect to get around it for those you are trading options as well.
The simple summary of the rule is a trader must have at least $25000 in their trading account to partake in day trading.
Otherwise, such is limited to a maximum of 3 trades in a five-day period.
Assuming you have gotten over that initial hurdle, let’s explore Why Is Day Trading Stocks So Appealing ?
For most traders, it is the instant gratification to make quick money, it makes the animal Spirit in each one of us feel good to acquire wealth at a fast pace
In addition to that, Day Trading can provide a very large number of trading opportunities.
How so ?
Well, you can trade and benefit from the same stock several times a day and in both directions up and down.
For instance, a Day trading session can easily resemble this:
Trade #1 Stock is bullish on Gap and Go (When a stock gap from the previous day close).
You buy it and sell it at known Resistance (per study, chart history or technical indicators such as RSI)
Trade #2. Then it retraces to natural support ( EMA20, EMA50, VWAP, etc.)
Trade #3. Buy it at support for another run to High of the Day
Imagine the combinations of the above example on one or multiple stocks within your watchlist.
Of course, there is a danger of Over trading we will be addressing on a different day.
You must be thinking it is all good and promising but how does one actually find these stocks ?
Best Day Trading Stocks: What To Look For ?
The amplitude of movement or Volatility of the stock must be sufficient in order to make a measurable profit.
If you are trading 100 shares of a stock that you buy at $50, a $1 move or 2% gives you a profit of $100.
You initial Risk is 100 times $50 which is five thousand dollars. This is just for one trade.
You can now infer how many possible such trades you will be able to carry simultaneously.
They can add up very quickly.
Hopefully, when you have enough money to qualify for Day trading on your the account, you can trade on margins as well.
Meaning that your brokers will give you a buying Power much bigger than the cash you deposited in the account.
Some brokers can provide up to 2 to 4 multiples of the cash amount.
This can be a good selection criteria when assessing stock trading platforms as we suggest here.
In order to measure the amplitude, traders rely mainly on one key Indicator: ADR
Or its closest more know emulator ATR.
What Is The Difference between ATR and ADR ?
ATR stands for Average True Range: It is the average movement between two consecutive closing prices
ADR stands for Average Daily Range: It is the average Intra-Day Move Between the Opening Price and the closing price
This means that what separate these two indicators is solely what happens between the previous day close and the current open price. That gap can be up or down.
Day traders do not have to worry about it all hence the ADR is really the better indicator to measure the best day trading stocks.
The second criteria to look for is the Volume. Volume is the number of shares that are exchanging hands across all exchanges. It is available for all traders to see Live as the transactions take place.
There must be enough volume so that traders can liquidate their positions with ease.
Notice that I did not say sell their position.
Why is that ?
Day trading of stock is not limited at buying and selling only.
Short selling of stock is just as lucrative.
In order to partake in this type of trade, traders must ensure that their stocks of interest are shortable.
Stocks with recent IPO (Initial Public Offering) precludes Short Selling for a given initial period.
When this Volume criteria is met, the spread is usually very small (difference between Bid price and Ask price).
That is ideal for day traders in order to avoid slippage. Slippage occurs when a seller of the stock does not get an optimum price because of lack of liquidity for instance.
I should mention that relative movement of a stock compared to the main index S&P500; is know as Beta.
When Beta absolute value is greater than 1, it means that the stock tends to move more than the S&P500;.
VXX measures the S&P500; own volatility. You will hear traders try to predict the direction of the market based on its volatility.
Some even trade options on VXX but beware of the wild swings.
When the SPY (the ETF of S&P500;) is bullish, VXX does not move much but in days when SPY is bearish (red days), VXX will shoot up higher.
Day trading SPY Options is the most popular option trade in the market because many option traders especially the Big money are always interested in this ETF.
That is their main primary way to control the overall market.
Other ETFs I track are QQQ (represents the technology companies), IWM (this is the small cap ETF), XLF (the financial companies ETF) and XOP (the Oil and Gas Exploration ETF).
They all have plenty of volume which is good but their moves can be hard to predict sometimes.
Hence, we are going to focus next on not ETFs stocks.
Our Suggested Process For Stocks Selection
In the article 2020 Option Trading Tips, we unveiled a simple but efficient process to identify these stocks in our Momentum Setup recommendation.
During the pre-market or at any time during the Live session, the Screener feature of Finviz.com is the perfect way to obtain these candidates.
Here are the basic steps to perform from the Screener.
- Filter the Price Range of the Stocks to Consider based on your Capital Allocation
- Apply Filter for Relative Volume of your Choice – We suggest a value of 2 To Start and Adjust later
- Filter by current Volume depending on the time of the day, or per average historical volume or any other filter
- If Shorting to Open the position, Filter shortable only stocks with the option/Short drop down
Below is a view of the results we obtained in less than a minute while during Jan 2 2020 Live market session 🙂
We have applied three filters on as shown in yellow.
Notice the column o the right that provides the Gap in percentage. This is pretty neat for middle of the session trades.
This data can be exported in excel for processing in other tools if need be.
Research That Led To Our Recommendations
As an alternative to performing a daily search as suggested above, what if we can generate a list of the best Day Trading stocks based on our current watch lists and the empirical data we have observed ?
Well, that is exactly what we went out and did for our watch list of 80 stocks or so.
Our measure was during the past year, how many days each stock traded at least 1.5% above the previous close and below 1.5% of the previous close.
We picked 1.5% because it is a reasonable threshold to make good money in option trading.
Below is the list of the Top 15 Best Day Trading Stocks from our watch List in 2019.
The table above summarizes the number of day each stock met the 1.5% condition on the long side.
We share the average prices to give you an indication on how much capital is need for each stock.
The last two columns %TimeLong and %TimeShort are obtained by dividing the number of days the Long or Short condition is met by the total number of trading days.
The first stock on the List Roku is what I call a double agent.
Long and Short percentages are both above 50%.
This is the very proof of the erratic nature of this stock I highlighted in recent tutorial on our site.
Thus making it really difficult to trade as a stock and on options.
The three highlighted in yellow namely WDC, MU and NVDA are my favorites based on personal experience with trading options on them quite regularly.
Leveraging This Knowledge For Day Option Trading
As long as a stock is optionable (find that easily from Finviz.com), everything that was said above on trading the stock will be true for trading its options.
The leverage of trading options ( Day Option Trading or Swing Option Trading) in these type of stocks is that you will not need as much capital.
You can be handsomely rewarded especially if you can marry this technique together on the Best Days to Trade Stock options.
There you have it. A full list of our Best Day Trading stocks.
We learned that Day Option Trading on SPY Options is the most frequent Day trade.
You can either built your own such list over time or use the daily process we shared to generate a dynamic list.
We hope you found this information valuable for your trading plan.
If you would like to increase your knowledge and further your understanding of the concept of Day Option Trading, may I suggest this similar article.
If you would like see how we put this information in application to make money trading Options, click here.
Please leave us your thoughts, comments, experiences or questions about this content so that we can continue to tailor it to your needs.