Day trading stocks for beginners

What is day trading stocks?

Day trading stocks is the practice of buying and selling company shares within a day, or even multiple times a day. It’s considered the opposite of investing, as it seeks to profit from the short-term movements in a share’s price throughout a session, rather than over the longer term.

Another key difference is that day trading uses derivatives, which enable traders to speculate on shares that are falling in price, as well as those that are rising. This is known as going short. 

The stock market sees a lot of intraday price movement, known as volatility, around announcements, news, and other events. So, day traders use analysis to identify the entry and exit points that will allow them to take advantage of any short-term price movements, generating smaller but more frequent profits.

Typically, day traders will utilize leveraged products that magnify their buying power. Instead of putting down the full value of the stock, as you would when investing, you’d only need a fraction of the cost – known as margin – to trade.

Leverage comes with its own risks though, as both your profit and loss are calculated based on your full exposure, not just your initial margin, which can magnify your total. So, you should always take steps to manage your risk when day trading stocks, such as using stops and limits.

Strategies for day trading stocks

There are a number of strategies that day traders can use to take advantage of short-term price movements, such as:

• Range trading – which involves using known lines of support and resistance as entry and exit points, taking advantage of small oscillations
• Volume trading – this strategy involves finding a stock that is surging in volume and entering a position until the volume subsides
• High-frequency trading – which uses computer programs to place large orders quickly in order to exploit market anomalies
• News trading – which plays on the volatility that occurs around political, economic, and corporate actions on any given day

Day trading strategies can be used across asset classes, not just stocks.

How to choose stocks for day trading

To choose stocks for day trading, it’s important to have the right tools built into your platform. For most traders, this is a stock scanner so that you can find which stocks are currently ‘in play’. The best stocks to day trade are those that are experiencing both volatility and volume.

• Volatility – this is the percentage change of a market in a given time period. It tells us how fast markets are moving, but not in a specific direction. It’s most commonly shown as %Change in platforms or as beta – a measure of its volatility in relation to the overall market.

Normally, a beta of 1.0 is assigned to a benchmark, so that if a stock’s beta is higher than 1.0 it’s more volatile, and if lower than 1.0 it’s less volatile

• Volume – this is how many buyers and sellers are currently active on the market. The higher the volume, the easier it is for you to enter and exit positions quickly. Volume is a lagging indicator, typically in 5-minute intervals, and can be found on stock exchange websites

Best day trading stocks

The best stocks for day trading are those that experience high average daily trading volume, liquidity, and volatility within the stock market.

Here are some of the most popularly traded stocks each day by StoneX retail clients.

How much money do you need to day trade stocks?

There’s no set amount of money you need to day trade stocks, as most brokers don’t have any minimum deposit size. However, if you’re planning to trade on leverage, you’ll have a minimum margin requirement that you’ll have to maintain in your account to keep your positions open.

If your available capital falls below your minimum margin requirement, you’ll be placed on margin call. Following this, if you don’t top up your funds, your positions could be closed automatically.

When trading with leverage, it’s important that you never risk more than you can afford to lose.

Day trading stocks or forex

Day trading stocks and forex fundamentally use a lot of the same techniques and strategies, so your decision about which market to trade will ultimately come down to your personal preferences and goals.

While stocks see intraday volatility, in comparison to the forex market they’re relatively stable. The FX market is known for its fast price movements due to the huge numbers of traders on the market – in fact over $6.6 trillion worth of FX trades take place a day.

So, while the forex market presents more opportunities to take advantage of volatility, it also comes with a much higher degree of loss.

The forex market is also different due to the fact it trades 24 hours a day, 5 days a week. So, whereas when you day trade stocks you’ll be closing positions out at a set time of day when the market closes, with FX you could in theory keep them open around the clock. However, most FX traders still choose to close their positions at the end of their trading day, to avoid leaving positions open while they sleep.

Learn more about forex trading.