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    How to Day Trade Stocks Effectively?

    10 Minutes
    Updated Jun 19, 2023 06:37

    Day trading stocks has become a popular way to make quick profits in the stock market. The trend has been fueled to a large extent by the rise of social media trading 'gurus' and the presence of top-notch online trading platforms like Mitrade. Easy accessibility to market information also means that anyone can become a day trader within a few weeks of learning.

    For many traders, the appeal of day trading lies in the seemingly limitless profit potential. Indeed, a day trader can achieve 30% or even more returns within a single day. In comparison, the Securities and Exchange Commission (SEC) estimates that the average annual returns for the broader stock market are 10%, usually dipping to 6-7% when you factor in inflation.

    But there’s a catch.

    Making consistent profits as a day trader is can prove challenging, even for seasoned traders. It is, therefore, not a surprise that the majority of day traders - over 70% - lose money in the long run. 

    That said, day trading stocks can be a reliable source of income once you learn and refine technical and fundamental analysis skills. This article will discuss how you can become a profitable day trader and the most effective ways to day trade stocks.

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    What is Day Trading?

    Day trading stocks typically involves buying and selling a stock or several stocks within the same day. Day traders always seek to close their positions before the markets close for the day, regardless of whether they are in profit or not.

    Unlike swing traders, who usually anticipate large price movements in the medium term, day traders seek to benefit from short-term market price action. So, instead of waiting for a large price move, most day traders will trade several small moves within the day.

    Notably, day traders are not equal. Every trader has preferences, depending on their level of capital, trading skills, and objectives. Generally, however, day traders fall within four groups, as elaborated below:

    • Scalpers - This type of trader attempt to profit from small price movements by quickly buying and selling shares. They typically hold positions for a few seconds to a few minutes, aim to profit from small price movements, and my make dozens or even hundreds of traders in a single day.  Scalpers essentially try to make many small amounts of profit which can round up to a large figure at the end of the day.

    • News Traders - These traders use news and other publicly available information to make trading decisions. They specifically focus on trading opportunities that arise from news events, such as economic data releases, corporate earnings reports, and political developments. Their objective is to capitalize on the short-term price movement that occurs in response to news events. For example, if a company announces strong positive earnings that are better than expected, and it is anticipated that the stock price may rise rapidly.  News traders may attempt to profit from this price movement by buying the stock immediately after the news release and letting it go a short time later, once the price has increased.

    • High-Frequency Traders - As the name suggests, these traders execute a large number of traders at extremely high speeds (usually in microseconds) enabled by the use of advanced trading algorithms and low-latency trading technology, for the purpose of profiting short-term market inefficiencies and price differences. High-frequency traders typically hold their positions for only a few seconds and they make hundred or even thousands of trades in a single day. This method is usually adopted by large institutional investors, such as hedge funds and investment banks who have access to advanced technology and market data, that can be quite costly for the average retail trader. 

    • Intraday Traders - This group consists of traders who enter trades and hold their positions for anywhere between an hour and the entirety of the trading session. Most day traders fall within this group. Intraday traders use technical analysis, market news, and other charting tools to identify short-term price trends and make their trading decisions.

    Why are Day Trading Stocks So Popular?

    Day trading stocks is a popular trend for several reasons. 

    The first and most obvious reason is the potential for quick profits. Unlike long-term investing, which involves holding your positions for days, months, or years, day traders can make their profits within minutes or hours. The short turnaround times are especially attractive to retail traders with a view of recouping their investments.

    For some traders, day trading is a risk-management strategy. Unlike forex markets, stock exchanges are only open for a few hours daily. However, the flow of news, rumors, and discussions on quoted companies does not stop, which means that sometimes, certain stocks open with huge gaps from their previous session's close. For retail traders with small accounts, closing trades by the end of every day's session is a way of avoiding large losses in case a stock's price reverses overnight.

    The proliferation of stock brokers offering commission-free trading has also contributed to the rising popularity of day trading. Commission-free trading allows traders to buy and sell stocks without paying any fees or commissions, which can save them a significant amount of money. This prospect is very attractive for traders with smaller accounts or those whose strategies revolve around making multiple trades daily.

    Additionally, there are many CFD brokers also offer user-friendly trading platforms, supported with mobile apps, that make it easy and convenient for users outside of the US to trade. Major brokers, like Mitrade, offer margin trading. This, in effect, means that traders can 'own' high-end shares for as low as $1. So, while in the past you would need to buy one share of, say, Apple Inc for $168 (recent price), it is now possible to buy a piece of it for a fraction of the price, $8. 

    Finally, and perhaps unfortunately, the recent popularity of day trading stocks is driven by the desire to keep up with the plethora of trading experts who relentlessly flood social sites with screenshots of their 'profits.' These so-called gurus draw in large numbers of inexperienced traders who harbor dreams of making it big in the market. Unfortunately, most of these traders end up with massive losses and regrets due to a lack of understanding of the stock markets.

    Best US Stocks for Day Trading


    TradingView screenshot showing the most actively traded stocks of the day

    When it comes to choosing stocks for day trading, there are a few things to keep in mind. 

    Volatility - stocks with high volatility can offer greater opportunities for profits in a short period of time.

    Liquidity - high trading volumes and tight bid-ask spread gives you the leeway to buy and sell with more flexibility

    Industry and Sector-specific industries such as tech, energy, or healthcare are popular among day traders. 

    News and events - economic data releases such as employment reports, and consumer price index (CPI) can affect market sentiments and lead to significant price movements in individual stocks or the market as a whole. It is important to note that news and events can be unpredictable, and their impact on the stock market can be difficult to predict.

    With that in mind, here are some of the best US day trading stocks:

    • Inc. (AMZN.US) - Amazon is the second-largest company in the US in terms of revenue, according to Fortune Magazine. It is also a widely recognizable brand popular with many retail and institutional traders. Further, the stock is relatively volatile and is significantly influenced by news and announcements, making it easy to catch big moves within a day.

    • Apple Inc. (AAPL.US) -  Apple is not only one of the most popular brands in the US but also has the highest market cap in the world. The company is valued at over $2.6 trillion, making it a safe investment if you're looking for stable intraday gains. The stock is also heavily traded, moving more than 40 million units per day on average, which means the selling and buying opportunities are plenty.

    • Tesla Inc. (TSLA.US) - Tesla is another popular stock with high volatility and trading volume. And while its market cap and revenue are not as high as those of other companies on the list, the stock is highly volatile, probably due to its association with one of the most controversial men in the world, Elon Musk. On good days, the stock's traded volume can exceed 110 million, which means lots of big moves and thinner spreads.

    • Meta Platforms Inc. (META.US) - The parent company of Facebook, Instagram, and WhatsApp is easily the most influential in the world and a definite pick for any day trader. The stock's average trading volume is relatively high, and the price is affected by a high number of news and events.

    Honorable mentions: Alphabet Inc (GOOG.US), Microsoft Corp (MSFT.US), Advanced Micro Devices (AMD.US), and Bank of America Corporation (BAC.US).

    Ideally, you should look to day trade stocks that have large percentage moves within a day (3%+) and those that move large volumes (10 million or more). Movement in dollar terms also matters, with stocks whose prices change by more than $2 a day being great options. These three factors typically indicate that a stock is receiving lots of attention from big traders and if you have good analytical skills, you are bound to spot big movements as they occur. Here’s one place where you can find an overview of the stock market on any given day, including the top movers.

    How to Day Trade Stocks Profitably?

    Becoming a day trader is really more than what it seems. The journey involves countless hours of research and backtesting, not to mention psychological fortitude. 

    Nonetheless, it is possible to be a consistently profitable day trader with the proper foundations. Here are the steps to getting started:

    1. Education is key - Before you start trading, it is important to educate yourself about the stock market and trading strategies. Many resources are available online, such as trading forums, educational materials, and webinars, that can help you get started. Commit to studying price action, fundamental analysis, trading platforms, and risk management. 

    2. Choose a Suitable Broker - Choose a broker that fits your needs and trading style. Things to look out for includes and not limited to trading fees, a user-friendly trading platform, good reviews, and good customer support. 

    3. Practice with a demo account - Many brokers offer demo accounts that allow you to practice trading with virtual money. Open a demo account and use it to get a feel of the market and test out different trading strategies without risking your own money.

    4. Develop a trading plan - A trading plan is a set of rules and guidelines you follow when trading. A typical plan includes entry and exit points, risk management strategies, and trading goals. A trading plan can help you stay disciplined and avoid making impulsive decisions.

    5. Keep your eyes on the market - Day traders need to constantly monitor the market, analyze charts and news, and make quick decisions. This is how you spot moves before they happen and determine the market sentiment about a given stock. Various tools and resources are available online that can help you stay up-to-date on market trends and news.

    6. Practice proper risk management - Day trading is extremely risky, and your focus should mostly be on protecting your capital rather than making huge profits. This involves limiting large losses by setting stop-loss orders to reduce your loss sizes, diversifying your portfolio, and not investing more than you can afford to lose.


    To sum it up, day trading stocks can be a lucrative venture, but it requires a significant amount of knowledge, discipline, and risk management skills.

    It is important to note that the majority of day traders lose money in the long run, making it crucial to approach the market with a solid strategy and proper risk management.

    Still, you can make good returns as a day trader if you understand the risks, take time to study the markets, and limit the number of trades you make.

    Start your first trade

    Register a demo account for free and level up your trading skills. At the same time, enjoy a sum of $50,000 virtual money to practice and formulate your best strategies before switching to a live account. 

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    * The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

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