Today’s Intraday Recommendations – There are thousands of equities to choose from and day traders can choose any stock they want. A day trade runs a relatively large number of short and long trades in a day to capitalize on intraday market price action. Their goal is to profit from very short-term price movements. So the first step for a day trader is to figure out what to trade.
Once you have this information, however, you need to understand the characteristics of these stocks, particularly their liquidity and volatility, in order to choose the best stocks to trade. Once a trading opportunity is identified (a stock, multiple stocks, or an exchange traded fund, known as an ETF, etc.), the next step is coming up with ways to profit from them.
Today’s Intraday Recommendations
Liquid stocks have high trading volume. This allows buying and selling in large quantities without significantly affecting the price. Because intraday trading strategies rely on speed and precise timing, high volume makes it easy to enter and exit trades.
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Depth is also important because it shows you how much liquidity a stock has at various price levels above—or below—current market bids and offers.
Day traders need price movement to make money. Day traders can choose stocks that move a lot, either in dollar terms or in percentage terms. These two filters will often produce different results.
Keep in mind that higher than average profits are possible when volatility increases, but you also risk losing more capital in a relatively short period of time.
While there are those who specialize in contrarian plays, most traders look for equities that are relevant to their sector and index group. This means, when the index or sector moves upwards, the individual share price also rises. This is important if a trader wants to trade the strongest or weakest stock on a daily basis. If a trader chooses to trade the same stock every day, it is wise to focus on that one stock; No need to worry if it is related to anything else.
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You may have picked the sweetest stock in the world, but profiting from it depends on specific strategies. While there are many intraday strategies, the important thing is to follow some established guidelines. By finding some intraday trading signals, you are more likely to succeed.
The market always moves in waves and it is the trader’s job to ride those waves. During an uptrend, focus on taking long positions. During downtrends, focus on taking short positions. Intraday trends do not continue indefinitely, but may take a trade or two (or sometimes more) before reversing. When the dominant trend changes, start trading with the new trend.
Distinguishing trends can be the hard part. Trendlines provide simple and useful entry and stop-loss strategies. The following chart of the SPDR S&P 500 (SPY) shows several short-term trends on a typical day.
More trendlines can be drawn when trading in real time to see different degrees of each trend. Drawing in more trendlines can provide more signals and also provide more insight into changing market dynamics.
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To pick the best stocks for intraday trading, most traders will find it beneficial to look for equities or ETFs with at least moderate to high correlations to the S&P 500 or Nasdaq indexes. Then, isolate stocks that are relatively weak or strong relative to the index. This creates an opportunity for the day trader, because when the index goes up 1%, a strong stock can go up 2%. There is more opportunity in stocks that move more.
When indices and market futures are moving higher, traders should consider buying stocks that are moving more aggressively than futures. When futures pull back, strong stocks won’t pull back as much (or not at all). These are the stocks to trade in uptrends as they lead the market more and thus, provide more profit potential.
When index and market futures are falling, it can be profitable to short-sell stocks that are falling more than the market. When futures move up in a downtrend, the weaker stock doesn’t move up as much (or doesn’t move up at all). Weaker stocks provide higher profit potential when the market is falling.
Stocks and ETFs that are stronger or weaker than the market can change daily, although certain sectors can be relatively strong or weak for weeks at a time.
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The chart below compares the SPDR S&P 500 to the SPDR Select Technology Fund ( XLK ). The blue line of XLK was relatively strong compared to SPY. Both ETFs gained more during the day, but XLK had such a large gain in the rally and a slightly smaller decline in the pullback, that it was the market leader and outperformed the SPY on a relative basis. If you are going to buy something, choose the strongest investment.
The same goes for short trades. Short sellers should isolate stocks or ETFs that are relatively weak. Thus, when prices drop, you are likely to be in the stocks or ETFs that will fall the most, increasing the profit potential of the trade.
Trendlines are only approximate visual guides to where price waves will begin and end. Therefore, when you select stocks for intraday trading, you can use trendlines to quickly enter the next price wave in the direction of the trend.
When entering a long position, buy after the price moves down towards the trendline and then go back to the high position. To draw an upper trendline, a low price and then a high price low are required. A line connecting these two points is drawn and then extended to the right. On the chart below, the price rises above the trendline twice before falling a third time.
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Short selling in a downtrend would be the same. You should wait until the price crosses the down-sloping trendline. Then, when the stock starts to move back down, you use this as a trading signal to make your entry.
With patience, these two long trades offer a low-risk entry. Purchases are made near the stop-loss level, which will be placed a few cents below the trendline or the most recent price cut just prior to entry. As mentioned, trends will not continue indefinitely, so trades will result in losses. But as long as the overall profit is made, even if there is a loss, it is important.
Day traders have a limited amount of time to make a profit and therefore should spend as little time as possible on trades that lose money or move in the wrong direction.
In the chart below, entries and exits are marked. The chart shows that, as the trend continues, the price goes back to the previous highs. It provides an exit for each respective long position taken. The same method can be applied to downtrends; Profits are taken at or slightly below the previous low in the trend.
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The market does not always trend. Sometimes, intraday trends reverse so often that it is difficult to establish an overriding direction. If major highs and lows are not being made, make sure the intraday moves are enough to outweigh the potential reward risk. For example, with 10 cents per share at risk, the stock or ETF should move enough to give you a profit of at least 15 cents to 20 cents using the above guidelines.
If the price is moving in a range (not trending), switch to a range-bound trading strategy. Between ranges, our drawn lines will be horizontal, not angled. However, the same general concepts apply: buy when the price moves to the lower horizontal zone, support and then move higher. A short sale occurs when the price reaches the upper horizontal line, resists, and begins to decline again.
When buying as a day trader, look for exits at the top of the range but not to the right of the top. When shorting, look for exits at the bottom of the range but not at the bottom right. The potential reward should be greater than the risk.
Place a stop-loss just below the most recent low before entering a buy signal or just above the most recent high before entering a short signal.
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Alternating between trend trading and range trading can be difficult for many traders. Therefore, many traders opt to do one or the other. If trend trading, step aside while the market ranges and focus on trading stocks or ETFs that tend to trend. When range trading, avoid trading between trends and focus on trending stocks or ETFs that are trending.
There are many strategies that traders use to gain profit from their activities. Techniques include: scalping, momentum trading, breakout trading, trend trading, contrarian trading and news trading.
Stock depth and liquidity are essential metrics that day traders use when they are trading. There are several techniques for determining stock depth and liquidity. They are: trading volume, bid-ask spread, order books, timing and selling and market depth.
Stocks are volatile