Looking for a fast, technical means of trading? Stock day trading involves making trades on stocks within a single day, often keeping positions open for just a few hours at a time. Requiring plenty of insight and concentration, it's not for the faint of heart but can be a sound choice if you're interested in trading on economic news and technical analysis.
In this guide, we'll explore how you can learn to trade in this rapid and risky way, including the best stocks for it, benefits, risks, strategies and more.
Can you day trade stocks?
Yes, you can – indeed, stocks are a popular focus for many day traders.
Day trading refers to any trades opened and closed within a single trading session. These rapid trades are never held overnight, and several may be made throughout the day. Profits made through each day trade are small in line with short-term price movements, so traders often make several, aiming for incremental gains.
Day trading is common with stocks – securities which represent a fraction of ownership of a business. Any organisation that is listed on a stock exchange can be traded, providing options for traders of all interests. Several factors can influence day-traded stocks though, so it's important to perform technical analysis as well as understand the company, industry, and wider economic picture.
While some day traders purchase stocks themselves, derivatives like CFDs are a common way to trade without owning the actual stock. They can also afford the use of leverage. With these types of trading, traders speculate on whether the price of a stock will go up or down over a given period, earning a profit if their assumptions are correct.
To learn more about day trading, view our guide below. Learn to day trade.
The best day trading stocks
According to the World Federation of Exchanges, at the end of Q1 2022, there were 58,200 listed companies in the world. In the NASDAQ alone, in Q3 2022, 2,911 companies were listed, with a further 1,980 on the NYSE.
Volume is the number of times the stock is traded each day. The higher the volume, the more buyers and sellers are active in the market.
High volume means stock orders are fulfilled quickly, near the price quoted when you placed the order. Low volume might result in a wait between your request and the actual execution of the order, during which the execution price can change in relation to the quote (a phenomenon known as slippage) and eat into your profits.
Volatility refers to the degree the stock's price changes over a certain period. Volatility provides opportunities for day traders. The higher it is, the greater the chance of making a larger profit.
For day traders, intra-day volatility is a key metric, though looking at a 52-week price range can also aid in picking the best stocks.
You can also look at the stock's beta. This is its volatility compared to the overall market – the S&P 500 has a beta of 1.0. A rating of 0.5 would be half as volatile as the index, 2.0 twice as much. Higher betas are better choices for stock day traders.
So, which stocks are the best for day trading? At the time of writing (April 2023), tech companies like Tesla Inc., Meta Platforms, and Amazon tick the volume and volatility boxes. On top of that, established energy companies like Haliburton and funds covering the finance industry, like the SPDR Select Sector Fund, are all currently good potential choices.
The benefits and risks of stock day trading
Unsure whether stock day trading is for you? Here are the key benefits and risks:
Benefits
- Resources – Stocks made for day trading are typically the focus of plenty of market analysis. This can help beginners quickly boost their knowledge of their stock picks.
- Potentially greater rewards – Higher-risk trades can equal greater rewards, and given that trades are smaller in size, losses can be smaller than other forms of trading.
- No overnight negatives – Traders who keep their positions open overnight need to contend with market events happening while the markets are closed. Overnight positions often incur extra fees too.
- Leverage – Leverage can magnify the profits day traders make on their stock picks.
- Agnostic to market conditions – Day traders can open buy or sell positions, so even if a stock is performing poorly, there's profit-making potential.
- Thrills – Day trading stocks is very risky and fast-paced. For thrill-seekers, this could be seen as a positive.
Risks
- High overall risk – Due to its incremental nature, one particularly poor trade can wipe out many previous profitable trades in an instant.
- Complexity – Day traders typically need to monitor news and market movements, which can be complex and difficult to follow.
- Fees – Multiple trades equal multiple transaction fees which longer-term traders wouldn't typically pay.
- Emotion – Emotion is the enemy of day traders. Decisions are made minute-to-minute, and opportunities can disappear quickly. Greed and fear can harm your ability to day trade effectively, so you must keep a cool head.
- Leverage – With leveraged stock day trades, there is always the risk of losing much more than the initial capital you trade with.
How to day trade stocks
- Open an account: Sign up to a provider like Tradu. The process is quick and simple; you'll be ready to go in minutes.
- Gain experience: Read guides like this one, understand the platform, and become an expert in day trading stocks.
- Create your strategy: There are several ways to day trade stocks. Consider the strategies listed below and form a plan of action.
- Choose a stock: What stock are you interested in trading? Tradu offers a wide range.
- Take a position: Open a buy or sell position, watch the markets, and close when you want to take profit or minimise losses.
- Diversify: Tradu also offers a range of securities covering listed stocks and CFDs on forex, commodities, indices and crypto.
Stock day trading strategies
Here are a few of the main trading strategies available to stock day traders:
- Range trading – This strategy involves establishing the high and low prices of a stock over a period and trading multiple times within these bounds. The expectation here is that the price will not move outside this range.
- Trend trading – When trend trading, you buy or sell stocks based on what you think the trend of price movement will be over the trading period.
- Momentum trading – Using technical analysis metrics to identify whether a stock is at the start of a period of strong price movement momentum, opening a position in kind.
- Fade trading – This sees traders identifying stocks that have been oversold and short-selling them as interest starts to fall. Learn more about day trading strategies.
5 key tips for stock day traders
As with any form of trading, the only way to improve your stock day trading skills is through learning and experience. That said, there are some crucial tips every day trader should bear in mind:
- Stay informed – Day traders need to take advantage of rapid swings in stock prices. That means you must keep abreast of business news covering the stocks you trade and know when indicator announcements and financial statement releases will occur.
- Don't trade what you can't lose – Day trading stocks can be risky. That means you should only ever trade using amounts you can afford to lose. Consider how much you would be willing to lose on each trade. Many traders risk 1% to 2% of their account capital on each trade to minimise potential losses.
- Start small – Full-time stock day traders rarely start as such. Start by executing small trades alongside your day job, and only if you see sustained positive results consider whether day trading might be more than just a pastime for you.
- Devote enough time – Day trading stocks requires focus and concentration. You need to be able to act fast and take advantage of opportunities, so don't consign your trading to the background.
- Understand the pace of the day – Stocks are typically most volatile at open and just before close. If you're starting out, take 15-30 minutes at the start of the day to come to terms with the prevailing market sentiment, and consider avoiding trading during closing hours until you become more expert.
Day trade stocks with Tradu today
Day trading stocks can be tough and taxing, but by learning the skills required, exercising discipline, and gaining experience, you could increase your chances of success.
With Tradu, find all the resources you need to start day trading listed stocks, including our expert guides. Once you're ready, set up your live trading account and open your first position.
With Tradu you can trade stocks and Crypto via CFDs or you can own real stocks where you take ownership of the underlying asset.
