How to Select Stocks to Day Trade
Day trading refers to the buying and selling of stocks within the same day. Generally investors make long term investment plans and hold the stocks for quite some time, even weeks or months sometimes. However, day trading is a new scheme of trading which has gained a lot of popularity these days, allowing traders to make use of the small changes in stocks prices in a single day and squeeze out profit.
Sometimes it results in the buying and selling of same stocks within a span of few minutes. Compared to the standard mode of investment, it is very risky and it takes years of experience for someone to maintain a consistent profit margin. Although there are so many fluctuations that it is hard to give any guarantees, but entering the daily stock trade business with a solid plan cannot hurt a wise trader.
Collect data about the price variations within a single day and use it to make a price chart. Calculate the periodicity of chart; which refers to the amount of changes to stock price daily.
Most day traders use small time periods while preparing their charts - 5 or 10 minute periods - while some traders use the hourly mechanism to keep their data updated. You can put the data in the software to predict the future fluctuation in a given day. These predictions tables are a good way to get the clear picture of the stock market.
Prepare a list of all potential investment candidates. Day traders generally deal with stocks which have high volume and large capitalization, as this keeps the stocks liquid.
Stocks with low liquidity are not attractive for daily traders, even though they may offer large margins of profit.
Highlight the stock in your price chart and observe its recent activity. Use the ‘Dow Theory’ to analyse the statistical data. The stocks with big highs and small lows offer better margins of profit, but they are a risky affair.
Identify those stocks which offer decent rate of return and are also relatively stable. When you are done with the analysis, you will be left with a small set of potential daily trading candidates.
Change the periodicity of the chart and perform the analysis again. This analysis will generate a second list of potential daily trading candidates. The stocks which are present in both these lists must be picked up definitely.