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Knowledge Crunch

5 Best Day Trading Stocks for Beginners (List for 2021)

Thursday, June 10, 2021 6:36 PM GMT

As a first-time stock trader, day trading is an attractive and potentially lucrative option. 

By buying and selling stock on the same day, also known as intraday trading, there are profits to be made without needing the patience that a long-term trading strategy requires. 

Day trading stocks - just like with commodities or forex trading - comes with risks; you can lose money if the stock goes in a different direction to what you expect. 

With thousands of different stocks available in the USA alone, knowing which stocks to start your trading with can be a head-scratcher. 

We're here to help, with our guide to day trading stocks including:

  • How to decide if a stock is a viable option for day trading
  • Stocks that have good potential for day trading
  • Tips on preparing yourself to start life as a day trader

Let’s get into it. 

 

Table of Contents

4 Characteristics of Good Stocks for Day Trading

5 Best Day Trading Stocks for Beginners

5 Tips for Successful Day Trading



4 Characteristics of Good Stocks for Day Trading

Before you get into day trading, you need to know what to look for in a good stock to make same-day profits. 

Not every stock is going to be suitable for day trading - the best day trade stocks will have some characteristics that attract beginner traders as well as professionals working for hedge funds and mutual funds looking for long-term returns. 

There's going to be some research involved, but what do you actually need to look for? 

We've boiled it down to four key characteristics that you need to be watching for when you assess stocks.

Here are the things you need to check out, and the statistics that you need to understand. 

 

Characteristic #1: Stock volatility 

Volatility is when there are lots of short-term changes in the price of a stock - or currency, index, or commodity - which you can capitalize on as an investor. 

When there are regular price changes in a stock, you can use your trades to make profit; a simple example would be buying a stock before a price rise and selling it when that increase happens and you pocket the difference. 

To measure volatility in the stock market, you'll normally look at the historic volatility close-to-close. 

This is calculated based on how much a stock deviates from its average price over a period - usually 30 days. 

The historic volatility for the month, or HV(30) - is expressed as a number between 0 and 1; the higher the number, the more volatile an asset has been over the period being measured. 

You may also see it as a percentage, which will be the same number multiplied by 100.  

To give you an idea of what to expect in terms of volatility, let's look at the NDX - a stock market index of the top 102 non-financial stocks on the NASDAQ exchange

Across these stocks, in the last 30 days up to May 21st, 2021, the volatility has been 0.07, which we can use as a benchmark when we look at individual stock volatility later on.

The average true range (ATR) is another measure used in technical analysis as an indicator of the volatility of a stock. 

Take the difference between the highest price and lowest price on a given day and average that out over a period and you get the ATR of a stock. 

 

A high ATR means a volatile stock that could be a day trading stock worth working with. 

 

Characteristic #2: Price movement

The next characteristic that you'll want to look for in a good day trading stock is the price movement it experiences in a day. 

The price movement of a stock is measured by how much it moves up and down during a day, with lots of movement generally within the first 30 minutes, when there is opportunity to make profit with the right strategy. 

Lots of price moves translate into lots of potential to make a trade that should hopefully earn profit for you. 

Professional traders will tend to look at a "candlestick" chart that shows the maximum and minimum price a stock was traded for each day. 

Here's the NDX index again, this time with three months of data up to May 21st, 2021. 

Image Source: ZuluTrade Platform. Feed is indicative and doesn’t replace the actual feed of your broker.

 

When the block is long, this means there was a big difference in the high and low price for the day. 

We've also highlighted the price change noted as a percentage, which is a number you'll see change moment to moment when you watch stocks on your account or the ZuluTrade homepage, for example.

Author's Note: If you're interested in making trades with the NDX rather than individual stocks, you can invest your money in an exchange-traded fund (ETF) that will facilitate this. 

 

Characteristic #3: Trading Volume

Next up, we're going to look at trading volume - the number of shares that have been traded on any one day for a stock.

A high trading volume means that there are lots of active traders, which means lots of people looking to buy and sell the asset. 

How does this make a stock ideal for day trading? 

When you're ready to buy or sell, there's very likely going to be someone willing to trade with you so you can get the price you want to achieve. 

This time, we're going to look at the NASDAQ exchange as a whole to understand the volume of stocks traded each day. 

Image Source: NasdaqTrader.com 

Here, we can see the total volume of shares traded on May 20th, 2021. 

We know that there are roughly 3,300 companies listed on the NASDAQ, so an average trading volume would be 1,207,548 for that day. 

Another piece of information that can help you assess the trading volume of a stock is the depth of market, or DOM. 

It's like an order book, detailing all of the open buy and sell positions on any stock and can help you analyze whether the stock price may go up or down based on how many people are waiting to close positions. 

It's worth noting that not all trading platforms or brokers offer this information. 

 

Characteristic #4: Tight Spreads

The last characteristic that you need to assess when looking for a stock to focus your day trade activity on is the spread. 

Put simply, the spread is the difference between the lowest price a seller will take and the highest price a buyer will pay for a stock. 

It's sometimes called the "bid/ask" and you'll see it as a number - the lower the number, the tighter the spread. 

You want a tight spread on your day trade stocks because this means there are lots of people willing to do deals - you'd also say there is high liquidity -  so there can be quick profit to be made. 

Here's the spread for Amazon (AMZN) at around 14:45 (EEST) on Tue 8th, 2021:

The spread of every stock will change throughout the day in real-time so there isn't historic data to access, but when the spread is tight, you know there is a lot of activity happening on the stock. 

Now you know what you're looking for in day trading stocks, let's take a look at some that hit these criteria at the moment. 

 

 

5 Best Day Trading Stocks for Beginners

 

With plenty of information to look at besides the stock price, it can be overwhelming to find the right stocks to work for your trading strategy.

Of course, things change regularly with the stock market and this month's hot trade might be next month's penny stocks. 

The five stock picks we have for you match the criteria we've laid out at the moment and are trending stocks, but remember to always do your research and make sure the stocks you invest in are right for your needs. 

Author's Note: All of the stocks we're going to look at are available on ZuluTrade's trading platform.

 

Let's look at the stocks you can consider as your entry point to being a successful day trader. 

Stock #1: Tesla Inc. (TSLA) 

Tesla is one of the companies owned by the renowned entrepreneur Elon Musk. 

The company created a step-change in the manufacture of electric cars, has large investments in cryptocurrencies, and trades its carbon credits with other companies to make a profit. 

It's traded on the NASDAQ stock exchange and is currently one of the most common stocks to be shorted by experienced traders. 

Because of this shorting activity, it's known to be a volatile stock, with its HV(30) coming in at 0.46:

Image Source: Yahoo Finance

Tesla's ATR is also high, at 31.30 over the 14 days to May 21st, 2021. 

In terms of trading volume, on average, there are 33,212,050 Tesla shares traded each day. 

With a high level of volatility and large volumes being traded, Tesla may be worthy of your attention as a day trader. 

Image Source: Alpha Query

Let's look at what's up next.

 

Stock #2: Apple (AAPL) 

Apple's technology is ubiquitous: their phones are the most popular in the USA with nearly 60% market share

The stock is traded on the NASDAQ and has very high trading volumes indeed - on average, 95,087,487 Apple stocks are traded each day. 

However, whilst there is a lot of activity with these tech shares, the price isn't as volatile as other stocks we're going to be looking at:

Image Source: Alpha Query

It also has a low ATR value of just 2.86, but the very high volume could offset this and still make it a potential for successful day trading. 



Image Source: Yahoo Finance

 

Stock #3: Advanced Micro Devices Inc (AMD)  

Advanced Micro Devices Inc., or AMD, is another tech company worth checking out as you start day trading. 

The company makes semiconductors for computer processors and a range of other hardware for consumer electronics. 

Starting with volatility, its HV(30) is high…

Image Source: Alpha Query

… although its ATR is rather low at 2.65

The average number of AMD shares that are traded each day totals 45,641,354, which is more than Tesla's shares, which are more volatile. 

Image Source: Yahoo Finance

Ready for the next day trade stock to look into?

 

Stock #4: Microsoft (MSFT)  

Another NASDAQ-traded stock that could be a good place to start day trading is Microsoft. 

There are over 1.3 billion devices running Windows 10 in the world, and the company is a household name. 

Plenty of Microsoft shares get traded each day, with an average volume of just over 28 million per day

Its 14-day ATR is 4.83 making it more volatile than some of the other stocks we've looked at.

Meanwhile, the HV(30) for the corporation stands at 0.23, as you can see below. 

Image Source: Alpha Query

Here's how the stock has performed over the last two years.

Image Source: Yahoo Finance

We've got one more day trading stock to check out. 

 

Stock #5: American Airlines (AAL)  

Based in Texas, USA, American Airlines has the biggest airline fleet in the world

It's also traded on the NASDAQ and is a volatile stock that could offer good day trading opportunities. 

When we look at the HV(30), it's at 0.45…

Image Source: Alpha Query

… yet its ATR currently sits at 0.92

When we look at the trading volume for its shares, the average comes out at 38,421,316, which means there are lots of traders working with the stock. 

Image Source: Yahoo Finance

Those are the five stocks that we've identified as having high volatility or being heavily traded each day and so worth your while checking out. 

Now, we've got some tips to help you try and take advantage of these stocks. 

 

5 Tips for Successful Day Trading

Day trading can be a way to make money in a short timeframe, but it's not something to enter into lightly. 

We want to see you be successful, whether you trade with the stocks we've discussed or you choose to invest your funds in different companies available to you. 

Aside from getting your brokerage and trading accounts set up, here's what you need to be thinking of as you start out day trading.  

 

Tip #1: Know your stocks

The first thing that you need to do on your day trading journey is to get researching. 

You should start out trading with a few select stocks that you really get to know inside and out. 

We mean that literally: read the financial reports that the company produces, follow their social media accounts, and also pay attention to wider industry news.

As well as paying attention to the comments made by a company CEO and industry voices of the companies you want to invest in, you should start tracking their market activity. 

You can do this by creating watchlists, which give you side-by-side data of the stocks you want to follow and easy access to deeper data, like in the screenshot below.



Finally, there are different charting methods, such as the candlesticks that we looked at earlier, that you can learn about to be able to spot an uptrend in the market and cash in on it. 

 

Tip #2: Know your risk

There is always an inherent risk when you trade on the stock market; the risk you could lose money and the positive risk that you could turn a profit. 

Day trading can be a risky trading style because, as we've seen, you're trying to make profit off volatile stocks which, by their very nature, are highly unpredictable.

Traders will tend to risk about 1-2% of their cash in their online brokers account on any one trade - this can protect you from losing a large amount of money. 

Making money day trading can be a great feeling, but always remember that the market or your chosen stocks could move in a way that you didn't expect - be ready to not always be a winner. 

 

Tip #3: Know your limits

It can be really tempting to jump in and trade on all the stocks that you know the names of and feel comfortable with. 

Household names may not always be the best stocks for making money day trading, though. 

For example, you'll likely find at least one Johnson and Johnson product in your bathroom, but with an HV(30) of 0.13 and a trading volume of 6,429,776, it's not got a lot of potential for a pattern day trader. 

Start small - focus on two or three stocks that you really want to get to know, and then you can set up limit orders with your chosen brokerage firm to ensure your investments only move within parameters you set. 

 

Tip #4: Know the time 

There'll never be the perfect time to buy a stock, but there are better and worse times. 

Because of pre-market activity - when professionals make a trade based on what they think will happen when the market opens - the first opening 30 minutes of a market can be very volatile. 

The price level of stocks can change rapidly at this time, so when you're starting out at the very beginning of your trading education, wait until things settle down at around 10:00, if you're trading on the NASDAQ. 

It's still worth watching the market during this time so you can start to get a feel for how the stock you're trading moves. 

When you feel more confident, you can start to trade in the opening half-hour to try and make profit during this more volatile time. 

 

Tip #5: Know your strategy

You're going to come across a lot of different day trading strategies when you start to learn about your trading options. 

When you get started trading stocks, it's a good idea to have a trading plan and stick to it. 

You might bring emotions into your trades at the beginning, which can cloud your better judgment, so a strategic approach can help keep you on track. 

One way to get to grips with your chosen strategy is to do backtesting and forward testing, which means you use historic market data to see if applying your strategy during that time would have been successful. 

Your strategy should be testable and repeatable and give you a statistical edge on the market. 

You'll quickly get better at reading chart patterns and setting up stock screeners to learn about the securities you want to trade. 

At this point, you can allow your strategy to evolve, and even consider moving into different types of trades like swing trading or working with higher-risk, small-cap stocks. 

That's our top five tips for starting day trading as a beginner, so let's wrap this up. 

 

Now Over to You

You've reached the end of our guide to the best day trading stocks for you to investigate so you can start on the path to stock trading. 

As well as the five stocks we think you need to look into, we've given you:

  • The major data points to look at when assessing a stock for day trading
  • Some benchmarks to refer to as you start your research
  • Our tips to get your trading off to a smooth start

Are you ready for some action? 

Create your ZuluTrade account, connect or open your broker account, and start trading. 

 

Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.

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