How to Choose Stocks for Day Trading

Day traders favor high-volume investment strategies.
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Day traders make a living by trading individual stocks full-time. These traders tend to favor making short-term trades for quick and continuous profits rather than holding stocks for long-term appreciation. Because of this, certain stocks are better suited to day traders' portfolios than others. Knowing how to choose stocks for day trading can help you to get into this exciting and potentially rewarding field.

Step 1

Watch for trends in industries before analyzing individual companies. Look for fledgling industries gaining rapid popularity among a wide consumer base. Watch for new technologies and other breakthroughs that give a boost to industries or business-types. Once you've found an attractive industry, begin to look more closely at individual companies to see which company's stock is performing above the rest.

Step 2

Watch the Initial Public Offering (IPO) market. Buying first-round stock in an up-and-coming company can provide large profit potential. Companies that offer unique and innovative value to consumers, or those whose wide popularity has caused them to pursue growth through incorporation, can boost stock prices quickly after the IPO.

Step 3

Analyze financial statements and financial ratios of individual companies. Look for fast revenue and market share growth over long-term success factors such as leverage and equity ratios. Look for companies which sacrifice dividend payments to fuel expansion. Always keep in mind that you are looking for quickly-rising stock prices, not necessarily long-term plays — although it is wise to have a few long-term holdings in your portfolio to hedge against short-term risk.

Step 4

Keep an eye on the domestic and international legal environment. New laws and regulations, or the expiration of old regulations, can boost or impede performance in particular industries or with specific business types in the short term. As with Step 1, drill down into individual companies after an industry throws a flag.

Step 5

Use earnings reports to spot rising stars. Publicly-traded companies report their earnings figures quarterly, creating four distinct times of the year when traders sit on the edge of their seat waiting to make plays based on which companies' earnings have beat analysts' estimates and which have fallen short. Keep an eye on analysts' estimates and make quick plays after earnings releases.

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