In Part 1 I gave an overview of day trading. Here I am going to add additional insights into finding the right stocks to daytrade. Why is it important to select only 2-3 stocks? This is because since day trading is a game of jumping at the right moment, we cannot realistically watch more than 2-3 stocks per day. This is why it is important to choose the right ‘stocks in play’.

A ‘stock in play’ is a stoc that offers excellent risk/reward opportunities. Eg if your downside is $1 but upside is $5. Here’s the characteristics of stocks in play –

1. A stock with fresh news
2. Stock up.down more than 2% pre market open
3. Stocks with unusual pre-market activity.
4. Stocks with unusually high trading volume (pretty important)

The main thing to make sure is that the stock are trading independent of their sector or the market as a whole. For eg even if a stock is trading down it could be because the entire market is selling off. This doesnt make that stock more attractive. What makes a stock in play? Major news releases about the stock such as earnings reports, mergers/acquisitions, partnerships, layoffs etc.

Here’s an optimal criteria to pick a stock to watch –

• Stocks in premarket gapped up/down at least 2%. “Pre-market Gap %” would then refer to the percentage change in the stock’s price in the pre-market trading session compared to its closing price from the previous day.
• Stocks that traded atleast 50k shares pre-market
• Stock with mid float (number of shares available in the market) of 10million – 500 million. Stocks with much higher float (think megacap) dont move much to make money and stocks with very low float are too volatile. This is the goldilocks zone.
• Stocks with a average true range of atleast 50 cents (how large a range stocks move)

Note: All of this have to be done before the market actually opens because the first 2 hours of the market is where most volatility happens and hence where you make the most money.

Day trading is a boring endeavor – most of the time you are just sitting there watching the numbers until the right time. So patience is key.

Tools I recommend (Check out my earlier posts where I talk about them) –

• https://www.marketwatch.com/tools/screener/premarket
• https://www.tradingview.com/screener/

One of the tools the actual professionals use is trade-scanners.com but it is pretty expensive (almost $100/month) so I would only recommend once you are sure of yourself.

Tools and platforms

Keep in mind, US brokers enforce minimum liquidity rules for day traders. This is to prevent amateur day traders from losing all their savings to the volatile market.

• Interactive Brokers
• ThinkorSwim by TD Ameritrade
• Etoro (I like this because you can use a virtual portfolio)

One concept to understand is bid vs ask. Bid is what people are offering to pay for the stock and ask is what sellers are demanding to sell it.

In subsequent posts I will dive into more mechanics and concepts to suceed at day trading.

Happy Investing!

Disclaimer: The information provided here is for general informational purposes only and should not be considered as professional financial or investment advice. Before making any financial decisions, including investments, it is essential to seek advice from a qualified financial advisor or professional.