Day Trading Stocks Guide for 2023
There are a variety of styles when trading the stock market. This includes swing trading, momentum trading, mean reversion trading and day trading, among others.
In this ‘Day Trading Stocks Guide’ we cover what it is, how to do it and how to get started.
Table of Contents
What is Day Trading Stocks?
Day trading stocks is a method of speculating on stock prices within a single trading day. Effectively, a stock day trader is trying to profit from the short-term up and down movements of a company’s share price.
As the trading style of day traders is short-term in nature, they look to hold positions – in profit or loss – over a few minutes to a few hours but rarely for longer than a day.
Why Day Trade Stocks?
There are thousands of stocks to trade on which could provide potential trading opportunities nearly every day. Many people may already know what is going on with a stock such as Apple or Tesla and will try to use that information to speculate on the stock’s price direction.
The overall aim of day trading stocks is to try and turn a profit from speculating the price direction of a company’s share price. However, this doesn’t mean to say it is easy and is probably one of the most challenging ways to trade a stock. You can also day trade forex.
Below are the tools you need to start day trading stocks and a few tips to make sure you can start out the right way which is to ensure proper risk management and enough time to educate yourself on the risks involved.
What You Need to Start Day Trading Stocks
To start day trading shares there are some tools you will need to get started. These can be broken down into three categories: broker, platform and research tools.
1. Choosing the right stock broker and account
Your broker is your gateway to the financial markets - make sure they are reputable and licenced. For example, Admirals is authorised and regulated by many of the world’s top financial regulators including the UK Financial Conduct Authority (FCA), Cyprus Securities and Exchange Commission (CySEC), the Australian Securities and Investments Commission (ASIC) and the Jordan Securities Commission (JSC).
With Admirals, there are two types of stock trading accounts available:
- Invest.MT5. This account allows you to invest in real stocks and shares from 15 of the world’s largest stock exchanges. As you purchase real stocks you can use the account to try and build a portfolio of dividend-paying stocks to use as passive income.
- Trade.MT5 account type. This account allows you to speculate on the price direction of a stock without owning the underlying security by trading contracts for difference (CFDs). This product allows you to trade long and short to potentially profit from rising and falling markets.
A CFD trading account can be useful for day traders as not only does it allow you to potentially profit from rising and falling stock prices, it also allows you to trade on leverage. This means you only need a small deposit to control a larger position which can help to amplify gains but also losses.
Learn more in The CFD Trading Guide.
The commission to trade a stock is also important. This is because day traders aim to profit from small price movements during the day multiple times. High brokerage fees can easily eat into the profits.
Both the Invest.MT5 and Trade.MT5 account types offer competitive commissions to trade stocks. For example, you can trade US stocks with a commission starting from $0.02 per share and with a low minimum transaction commission of just $1.
2. Choosing the right stock trading platform
As day trading stocks involves finding short-term trading opportunities, throughout the trading day, you need to have a fast and secure trading platform. Admirals provide access to MetaTrader 4 and MetaTrader 5 for desktop, web and mobile.
The MetaTrader suite of platforms are popular platforms among traders. They come pre-loaded with a wide range of indicators and timeframes to trade on, as well as the ability to create your own automated trading strategy and customised indicators.
Traders can also upgrade the MetaTrader platform to the MetaTrader Supreme Edition. This is a plugin that provides access to more indicators and tools such as:
- Additional indicator package including pivot points, renko charts, day sessions, symbol info and more.
- Trading simulator to test your manual trading strategies and includes smart lines and lot-size calculator.
- Mini charts to track multiple stocks and shares in just one chart and access different timeframes from seconds to hours.
- Access to real-time news and comprehensive account trading statistics and much, much more.
Download the Admirals MetaTrader Supreme Edition plugin for free below.
3. Accessing high-quality stock research tools
There are thousands of stocks available for day traders. Identifying the best shares to day trade can take some time if analysing each stock manually. This is where day trading stock screeners and research tools become essential.
Admirals provide access to the Technical Insight Lookup indicator by Trading Central from the Premium Analytics section in the Dashboard. This provides actionable technical analysis patterns developing on stocks, commodities, indices, bonds and cryptos.
The below screenshot shows the current active technical events on Apple’s share price (symbol AAPL).
Using algorithmic day trading technology to help identify technical analysis events happening on a stock could be helpful for active day traders. While more analysis will need to be done before making a decision it can help to speed up the analysis of a stock and potential trade.
It also serves as a good way to learn more about technical analysis and how to apply it to individual stocks. Users can click on any of the events taking place to learn more about the technical analysis event.
How to Find Good Day Trading Stocks
While there are different ways to day trade stocks, there are some characteristics that may stand out for all day traders. It’s important to identify what works for you as it will be different for each trader.
However, most day traders will analyse several characteristics to identify good day trading stocks. This includes volatility, liquidity and news.
Many long-term investors may shy away from high volatility as big price swings can cause huge fluctuations in profit or loss. However, for day traders high volatility is key as they try to speculate on the big price swings that can develop during such times.
Products such as CFDs or contracts for difference, allow traders to speculate on price direction and to potentially profit from both rising and falling markets. Admirals provide access to a market heatmap which can help to identify the top movers today, in the last 24 hours and for yesterday.
Stocks that have high volatility mean that they can move more during the day which is ideal for day traders. Stocks that have low volatility and do not move much within a day present some difficulties for day traders.
This is because day traders are trying to profit from the market movements that happen during the day while also fighting the cost of trading such as the spread and any commissions. The more a stock moves the greater the profit potential to cover such costs.
The liquidity of a stock refers to the ability to trade in and out of a position with speed and ease. When a stock has high liquidity or high volume, it means there are more buyers and sellers participating in that stock. More buyers and sellers in a stock can also lead to lower spreads (the difference between the price someone is willing to buy or sell at).
Stocks that are well known such as Amazon and Tesla will generally have higher volume and lower spreads as these are more actively traded. Traders may want to filter out for stocks that have a volume of at least 1 million shares per day.
News can also have a significant impact on a stock’s volume and liquidity. Many day traders may look to trade around earnings announcements as this can often lead to large price swings. This type of unexpected volatility could also mean your trade moving to your stop loss more quickly.
If prices move very fast, then the market may even trade through your stop loss resulting in a larger loss. Keeping the risk very low is important if trying to trade around news and earnings and there is the potential to lose all your capital.
You can stay up to date with all the latest news and trading strategy ideas in the Admirals webinar series, hosted by experienced traders, three times a week.
Register for your free spot below.
List of Day Trading Stocks
While it is possible to start day trading stocks UK and European companies, many day traders focus on US stocks as these tend to exhibit more volatility, volume and price movement. It may also be prudent to focus on day trading stocks that you have more knowledge about as this may help with your decision-making.
The most important factor is to be consistent with the same stocks. This is because you get to learn more about how that stock moves and its characteristics. For example, some popular stocks include:
1. Amazon (#AMZN)
- Exchange: NASDAQ
- Sector: Consumer Discretionary
- Average Volume 57,169,309
- Market cap: 1,302,285,498,513
2. Tesla (#TSLA)
- Exchange: NASDAQ
- Sector: Consumer Discretionary
- Average Volume 75,784,561
- Market cap: 949,096,741,930
3. Apple (#AAPL)
- Exchange: NASDAQ
- Sector: Technology
- Average Volume 71,538,875
- Market cap: 2,675,919,606,162
When is the Best Time to Day Trade Stocks?
Another key factor to take into consideration is that the stock market is not open 24 hours a day like the currency market. This means there can be certain times of the day when stock prices move the most.
Indicators such as the Average True Range (ATR) can help to identify when most of the price movement happens on a stock.
Below is a chart showing the price movement of Amazon shares every 10 minutes. The vertical lines on the chart represent the time the stock closes for trading and then reopens the next day.
What you may notice is that there are consistent spikes in the ATR indicator around the vertical lines on the chart. This shows that a lot of a stock price movement does tend to happen when the market opens.
As the stock market closes overnight, traders and investors may need to transact as soon as the stock is open for trading to readjust, exit or enter a position. It is still possible to trade throughout the trading day but the market may exhibit smaller price movements.
2 Strategies for Day Trading Stocks
There are many types of day trading stock strategies. This includes:
- Trend trading – the process of identifying the trend of a stock and trading only in that direction.
- Breakout trading – the process of identifying a ranging period of time on a stock price and then trading price as it breaks through this range.
- News trading – trading event-driven price action from surprise news announcements which cause the most amount of volatility.
- Gap trading – trading the market after it has gapped depending on whether it is a trend continuation gap or exhaustion gap.
Let’s have a look at the top two types of day trading strategies.
1. Day trading stock trends
A commonly used tool to identify the trend of a market is the moving average. This shows the average price of a market over a period of time. This can help to smooth out price data to determine the overall trend but also provide areas of support and resistance where the price could potentially turn.
The chart above shows Amazon’s share price on a 10-minute chart with the 100-period exponential moving average (EMA) plotted in green. The blue boxes highlight the periods of time price action interacted with the EMA.
You may notice that during this particular period of time the price has either bounced off or broken through the EMA. When the price has bounced off, the subsequent price movements have been very small or very large.
For day traders, this can serve as a starting point in building a day trading strategy. Many day traders will add more indicators and price action patterns to look for more clues on whether buyers or sellers may turn up.
Any form of trading is about putting probabilities in your favour but analysing and processing as much information as possible. But even so, losing trades will occur so exercise proper risk management.
2. Day trading stock breakouts
Market conditions change every day. Some days can be very trend based and some days will be very range based. These conditions are more prevalent when trading on lower timeframes as a day trader.
When a stock is not trending, it may move in a sideways range. When price action moves in between an upper horizontal resistance line and a lower horizontal support line it is known as a trading range, or consolidation.
Day traders could use these ranges to try and trade a breakout.
The above screenshot shows the 10-minute price action for Amazon’s share price during a fixed period of time. Over several days a trading range developed in between the horizontal resistance line and horizontal support line drawn in black.
Day traders could attempt to trade price as it breaks out of the consolidation, usually in the direction of the preceding trend. To avoid false breakouts, traders may wait for a bar to close outside of the trading range first.
One challenge is the placement of the stop loss and take profit levels. More tools could be used with this analysis. This could be identifying swing highs and lows for stop loss placements and higher timeframe support and resistance levels for targets.
It is wise to day trade shares on a demo account, first of all, to build up the skillset and experience. More importantly, to learn how to deal with the emotions of winning and losing.
5 Tips for Day Trading Stocks
Here are a few tips for day trading stocks:
1. Have a plan
A plan provides focus which is essential in the fast-moving markets that day traders operate. The plan should include a consistent routine, a watchlist of stocks to focus on, what you need to see happening in the market to identify a high probability trading opportunity and how to risk manage your positions properly. Always keep a trade journal.
2. Exercise proper risk management
Day trading in any market is difficult. It’s likely you will make many more mistakes when you first start trading. Therefore, exercise proper risk management to manage consecutive losing trades. Start on a demo trading account first to help build up your skills.
3. Stick to a strategy and a few stocks
Market conditions change on a daily basis. It is important to stick to a core strategy on just a few markets to learn how to apply it in changing market conditions. As the market will not be consistent, it is up to the trader to be so. Learn how to backtest a trading strategy.
4. Have realistic expectations
Unfortunately, there are many unregulated social media posts that fantasize about what day trading in the financial markets can do for you. However, it is more likely you will lose your capital than grow it exponentially in a short time. There are successful and unsuccessful traders but have realistic expectations of the time it takes to be in the latter. Learn some of the top reasons why traders fail and lose money.
5. Keep on learning!
Knowledge compounds over time. The more you learn, the more you practice on a demo account, and the more experience you build. Use the extensive articles and tutorials library from Admirals to learn more about the markets, indicators, strategies, risk management and psychology.
Get started today by opening a free demo trading account and testing your day trading skills in a virtual trading environment until you are ready to go live.
FAQs on Day Trading Stocks
1. What kind of stocks are good for day trading?
As day traders seek out small price movements throughout the day, the best stocks are the ones which exhibit a high amount of volatility, volume and liquidity. These types of stocks also tend to have lower spreads (one cost of stock trading).
2. Should I day trade stocks, forex or indices?
Day trading is a skillset that can be applied across all asset classes. Many individuals enjoy the 24-hour nature of the forex market but many prefer to trade the shares of companies they are familiar with.
Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
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