Best Stocks to Day Trade

Find the best stocks to day trade with Interactive Brokers as your online stock broker.

Day trading is an alternative investment strategy focusing on intraday stock price action to return significant short-term profits. When done right, the short-term gains can balloon into considerable wealth that could set you up for life. However, day trading is not a get-rich-quick scheme that will change your life overnight. You’re looking to build a portfolio that can provide you with long-term results but also short-term gains. That's why you need to know the best stocks to day trade so that you can fill up your watchlist, look for the next “buy rating” and understand what you want when speaking with an investment advisor or while researching with Benzinga. Read on to learn more about the top stocks day traders may want to add to their portfolio.

Best Stocks to Day Trade

The best day trading stocks feature significant volatility and substantial trade volume to drive daily price actions. Take a look at some of the best stock picks for your investment portfolio. While this is not an exhaustive list, it’s a good place to start.

Remember, when you choose these stocks, day trading does not need to be a career. It might be something you do on your days off to build another revenue stream for yourself or your family.

You can choose to open a margin account; you might choose to work as a pattern day trader; or you could use a traditional brokerage account. In any event, your trading activity should be confined to that day so that you can turn a predictable profit using these assets.

How Does Day Trading Stocks Work?

On the face of it, investors can trade just about any stock daily with a cash or margin account. However, not all stocks on Wall Street can deliver enough temporary daily supply or demand inefficiencies for day traders to capitalize on and earn profits. Trade volume and price movement are important considerations.

It’s less about stock price and more about news stories, job reports, price movement, market capitalization, what other stockholders are doing, market volatility and your investing strategy. Stock indexes give you several places to look, but this day trading guide helps you get started, allowing you to choose the brokerage firm you like and giving you trading tools that make it easier to plan for the future.

And let's face it, the core aim of day trading is to make money. At the same time, you need to do a full battery of research every time you plan to day trade.

While some stocks can deliver substantial price action on the intraday chart, others cannot. The former category of stocks is known as day trading stocks. They function as the ideal investment vehicle for investors who want to make a living on the stock market as day traders. At the same time, that does not mean that every investment will last forever.

The best day trading stock is one with enough volume and volatility. When a stock trades often and in high volumes with a reasonable price fluctuation, it presents an opportunity for investors to enter and exit positions quickly. Additionally, a day trading stock must be newsworthy. This means that you know you can get some action on the day you plan to trade. If not, you will likely be sitting on a long-term position that doesn’t match the needs of your day trading portfolio.

The reason is that media coverage creates volatility and liquidity by getting people hyped and interested in buying a company's stock. Such stocks trade or move familiarly. For instance, some are triggered by earning reports, and traders usually take advantage of earning announcements to trade them. However, earnings announcements also give you an idea of what might come next, allowing you to push your trades to another time.

Considerations for Choosing the Best Stocks to Day Trade

When deciding on which stocks to trade, you should look for a stock pick that suits you by following these key points:

• Compare them to your current portfolio
• Determine if they fit into your budget
• Monitor the performance of each asset
• Review current news items on each asset
• Determine if your portfolio can maintain its diversity
• Exit positions that aren’t helping your financial situation
• Review your performance and look for trends in your trading
• Diverse your revenue streams so that you’re not solely relying on day trading
• Review current events and trends surrounding the asset
• When a certain person or news item is dragging down a stock, you may want to move on

Benefits of Day Trading

Day trading can be advantageous when approached the right way. However, you may be new to the day trading scene and are looking for pointers that make it easier for you to get into the groove and build a portfolio. Many aspects make day trading attractive, but you must balance these advantages with drawbacks that could make it difficult to profit consistently.

Easy to Get Started 

Like most types of trading, day trading requires no formal certification or training. You're good to go with a basic understanding of the stock market setup, a laptop and an internet connection. Benzinga advises that you conduct constructive market research before diving in.

Potentially Enormous Profit 

When done correctly, day trading can be highly profitable. It takes less time to generate significant profits with day trading than any other investment strategy. Of course, you can argue that it carries more risk than long-term investing. However, with substantial risk comes great potential for reward. Once you've mastered your day trading strategy, you could be in for a world of money.

No Overnight Risk

The risks associated with holding a stock overnight are eliminated for a day trader who opens and closes positions before the trading day ends. Profits from traditional, long-term trading can vanish overnight if the market opens substantially lower or higher the next trading day. However, as a day trader, your profits from day trading are secure once you close your positions before the end of the trading day.

Success in Bad Market Conditions

A day trader can take advantage of a struggling or lousy market situation by leveraging short-selling strategies. The ability to profit from the stock market during bear market conditions is a massive advantage for a skilled day trader.

Risks for Day Traders

While there are numerous advantages to day trading, risks are also involved. Knowing some of the risks that characterize day trading can help you adapt to them.

Volatility

Volatility is a double-edged sword for day traders. A day trader relies on price fluctuations to lock in profit. On the other hand, because of the short action span of day trading and the unpredictability of the stock market, risk is higher. Therefore, it is essential to eliminate sentimental decisions as much as possible and consider your risk tolerance before making trades.

Remember, stock charts only tell part of the story. Speculators need a lot more information to make money, and a cash account can be depleted quickly. Practice with a paper trading account if you want to learn more before investing.

Margin Risk

Traders who use margin to improve their buying power take on increased risk when they buy stock with borrowed money. Suppose you're leveraging margins to day trade. In that case, you have to understand that you'll need to reload your account with fresh capital if the trade goes south to avoid liquidation.

Margin trading is not for everyone, and you must remember that a margin call is a real thing. Do not get into positions in which you cannot get out quickly, or you will end up owing a lot of money to the brokerage firm. Even if you meet the margin requirements for certain assets, do not assume you should borrow all that money at once. The risk that comes with trading on margin would be unwise to couple with a penny stock or meme stock trading strategy; these are best traded on spot.

Suppose price action goes against your prediction but promptly recorrects to realign with your open position. In that case, an exaggerated margin might liquidate your holdings once your balance can no longer support the initial price deviation. The implication is that you'll be losing on two fronts — your invested capital and potential returns. It is, therefore, vital to ensure that you're leveraging a feasible margin ratio to open your position, especially if you trade stocks.

Psychological Addiction

Day trading has the potential to develop into a psychological addiction. As with a gambling addiction, the chance to make large sums of money in a short time can create a desire to continue whether you're on a roll or not. As a day trader, it is critical to be self-aware. Knowing when to call it a day could be the difference between career success and failure. There’s a difference between a trading style — such as being a pattern day trader or operating as a swing trader — and simply being addicted to the process.

Compare Online Brokers for Day Trading

Day traders require express market access. To help them fast-track decision-making before locking in a trade, they require an excellent trading platform with robust tools and solid fundamental research. The best online brokers for day trading offer these features and much more. Here are some of the best online brokers and interactive brokers you should use for optimizing your day trading strategy.

You might also want to try TradeStation because it’s the best place to open an account, access several trading platforms and trade in stocks, exchange-traded funds (ETFs), options and mutual funds.

Frequently Asked Questions

Best Stocks to Day Trade Methodology

Benzinga analyzed a range of stocks to determine the best ones for day trading, considering factors such as trade volume, price movement, newsworthiness and market volatility. It compiled a list of stocks, including Tesla, Carvan, and Airbnb. Traders should compare these stocks to their portfolio, monitor performance, review news, diversify their portfolio and stay updated on current events. Day trading carries risks, and traders should conduct thorough research and manage risk effectively.