How to Find Stocks to Day Trade

  • February 12, 2020

New traders often ask us how to find "good" stocks to day trade. Well,  there is a famous expression in the trading community you've probably heard of, "You are only as good as the stocks you trade."

Not only are there thousands of stocks to choose from, but traders who have no idea how to find or even trade one. Besides that, they waste precious time and trading days mistakenly believing it's the fault of the market they can't trade. 

Your job as a trader is to know how to find stocks to day trade, so you don't waste your precious time.

It's important to understand that you can be the best trader in the world, but if the stocks you trade don't move, nor have sufficient volume, it's impossible to profit. In my opinion, what sets professional traders apart from the rookies, is there ability to sniff out the stocks that move or about to move with high volume.

These are the stocks you can make money from. Wasting time trying to trade a stock that doesn't move is akin to throwing darts blindfolded; rarely will you hit the bullseye.

Before we begin, it's essential to understand that every trader is different. What I mean is that one might prefer to trade baskets of stocks and indexes, whereas another might only trade ETF's. On the flip side, others may trade an entire market with index Futures. Having said that, day traders are different. We have a different set of rules to find stocks in play. 

Watch our video below on how to find stocks to day trade. 

How to Find Stocks to Day Trade?

  1. Do you know how to find stocks to day trade?
  2. 1:5 Risk Reward: shoot to make 5 times what you are risking per trade.
  3. News Catalyst: look for positive and negative news catalysts.
  4. Unusual Pre-Market Activity: look at morning gappers and see what's running.
  5. High Pre-market Volume: look for premarket volume with at least 500,000 shares.
  6. High Relative Volume: look for higher volume spikes than typically traded. 

Traders need to have a routine and system that works for finding stocks with similar setups that they prefer to trade. As I have shown in the video above, having a really good scanner.      

1. Find a 1:5 Risk to Reward

Before you jump into a stock, make sure your risk/reward is high enough. Personally, I'm risk-averse and like a 1:5 ratio — one where your downside risk is $0.05, whereas your upside profit is $0.25.  

2. News!

There must be some fundamental catalysts for stocks that make them suitable for day trading. News such as earnings reports/surprises/warnings/pre-announcements, FDA approvals/disapproval, mergers/acquisitions, stock splits/buybacks/debt offerings are good examples. We check news daily on Benzinga Pro.

3. Unusual Premarket Trading Activity

Typically this means a 2% move up/down premarket. More often than not, this is caused by some news (see above); somethings happening and somebody knows something. Any good scanner will pick up stocks starting to move in the premarket. And if they are to be a stock in play, they must have traded a minimum of 50,000 shares in the premarket with an average daily volume of 500,000 shares. We are updating our gap scanner here daily for the community to find these types of stocks.

4. High Volume

I've talked over and over in previous blog posts about the importance of high volume. To summarize, volume confirms trends, verifies there will be buyers when you want to sell and prevents slippage. Now you're probably wondering how high is high.

I would say this is a personal preference, but I know some traders won't trade anything less than a daily volume of 500,000 shares. If you want to get more in depth on volume,  study what does volume mean in stocks.

5. High Relative Volume

The relative volume compares the current volume to average volume for the same time of day. To put this in perspective, many stocks trade millions and millions of shares each day, like FB. Does this mean you should trade it? No. It would be best if you looked at more than a high total volume.

You need to look at what's normal for that stock and if it's trading above average. Fifty million shares of FB might be normal, which means you do not want to try to trade it. Likewise, the most important characteristic of high relative volume stocks is that their behavior is independent of the overall market. These are the stocks you want to trade. Check out our day trading options video.

How to find stocks to day trade

How to Pick Stocks for Day Trading

  • Picking stocks for day trading will depend on your trading style. Are you more of a momentum trader or a pattern setup trader? Do you need high volatility or do you want to let the trade setup for a few hours? You can base picking stocks off of your trading style.

1. Stock Patterns

Ok, so you found the stocks. Now you need to pick the right ones for YOU. Traders typically follow a routine to do this. That being said, if you want to pick the right stocks for day trading then part of your routine is going to be analyzing the pattern of the stock.

2. Bullish vs Bearish

Secondly, you're going to need to determine if you want to go bullish vs bearish, then search for patterns that are either bullish setups or bearish setups. Personally, I don't have a preference, and will trade either. If you're looking for bull plays, you're going to want to trade bull flags, bull pennants, ascending triangles , and inverse head and shoulders pattern. Preferable all of these patterns are clustered up on your chart to give you a higher probability trade.                                                                                                                                                                                                                                                  

Using a Scanner: How to Find Stocks to Trade

  • Luckily you don't need to prowl the internet looking for stocks to trade; that's what scanners are for. Once you've decided your criteria and strategy to trade, you're off to the races. At Bullish Bears, the Trade Ideas Scanner is our single most used and preferred scanner. Without a doubt, Trade Ideas will help you find exactly what you are looking for. And when I say exactly, I mean it; you can search for premarket gappers, the morning gappers, all day runners and even the after-hours movers. Trade Ideas truly is a game-changer. 

Parting Thoughts

If you're struggling with picking a trading strategy (i.e. ABCD pattern, bull flag momentum, VWAP trading, reversal trading, opening range breakouts, etc.), head over to our website. We have thousands of dollars of free courses and materials to help you decide what might work best for you. Plus, we are offering 15% off Trade Ideas, how great is that?

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