Summary: The goal of every day trader is to take positions on stocks that can deliver healthy returns within 24 hours. Finding the right stocks in the UK is critical for accomplishing this goal. Here’s how the best day traders do it.
Day trading is a difficult yet highly lucrative art. It involves the buying and selling of stocks, shares, and other financial instruments on a day-to-day basis. Day traders take new selling and closing positions every day. Most of them trade stocks and shares on a daily basis.
For example, a day trader will buy shares of a company in the morning for £10 each. By the afternoon, if the share price reaches £10.5, the day trader will sell all the shares. A return of £0.5 per share may seem small. But, day traders make several similar trades every day.
By trading the “right” stocks on the Best UK day trading platform every day, they can amass great wealth. However, profits are never guaranteed in day trading. Whenever a day trader picks a stock, he or she faces the risk of losing money.
What if the stocks they buy rapidly fall in value? Day traders can lose more than they earn if they pick the wrong stocks. That’s why day traders must perform extensive research into whatever stock they want to purchase.
Becoming a day trader in the current world is very easy. In the UK, aspiring traders simply need to open retail investor accounts on different trading and investment platforms. Then, they can take daily positions on stocks, shares, and exchange-traded funds.
However, becoming a successful day trader is far from easy. Not only will you need access to the right platform, but you’ll also need reliable high-quality information. Thankfully, successful day traders record amazing profits every day.
How do they do it? By conducting technical analysis, researching the stocks, they’re buying, and adopting efficient trading strategies. Most importantly, they always find the most heavily traded stocks of the day to take profitable positions.
Here’s how the best traders find the “right” stocks for day trading in the UK, on a day-to-day basis –
What is a “Good” Day Trading Stock?
There are many qualities that make a “stock” ideal for day trading. Unlike long-term investors, day traders only need to find stocks that experience significant price movements over 24 hours or less. The long-term value of the stock doesn’t interest day traders.
Assessing the Volatility of Stocks
A volatile stock is one that rises/falls in value frequently over a short period of time. These types of stocks seem risky, right? Yes — but not for day traders. For day traders, trading highly volatile stocks are the ideal scenario.
The volatility of a stock is linked with its overall market capitalization. The bigger the market cap, the less volatile the stock. That’s because large-cap stocks don’t usually move more than a few percentage points every day.
Day traders must identify the most volatile large or mid-cap stocks. They must also find low market cap stocks as they’re the most likely to experience severe volatility. A heavily traded low market cap stock will experience several notable price movements every hour.
The game is taking timely positions on the most volatile stocks of the day. Every hour, day traders have the chance to take positions on the most volatile stocks. They can sell them as soon as they increase in value and generate great profits within hours or minutes.
Of course, a volatile stock may go down in value very rapidly. In such situations, day traders must act quickly to close their positions or take up short positions. The risk of losing money is ever-present when you’re trading volatile stocks. But that’s what makes day trading fun.
Reviewing the Volume and Liquidity of Stocks
The volume of a stock refers to how frequently it is being traded on a given day. The higher the number of daily executed trades, the bigger the stock’s volume. The liquidity of a stock represents how quickly its shares are being bought/sold without impacting the stock price.
- Stocks with high liquidity are easier to sell. That’s because a lot of buy/sell orders are being placed on the stock at varying prices. Stocks with high liquidity are in high demand, irrespective of how much their price increases/decreases within 24 hours.
- Assessing both the volume and liquidity of a stock is critical for day traders. You don’t want to trade a low volume stock because its price will not undergo many changes within short periods. You don’t want to trade low liquidity stocks either.
You may have to take heavy losses if you’re unable to sell the stocks on time. Most large and mid-cap stocks offer sufficient volume and liquidity on a day-to-day basis. Day traders can easily “play” with such stocks.
But, they must keep track of the most liquid and heavily traded stocks of the day. Day traders do so by checking the liquidity/volume details of each stock on the best UK day trading platforms.
Performing Technical Analysis
Technical analysis of the stock market is the art of studying stock charts to find patterns and identify market trends. There are countless ever-evolving factors that can impact the stock market every day. The success or failure of day trades depends on these factors.
Of course, it’s impossible for solo traders to factor in so many details before taking up positions. Technical analysis makes this process easier. Day traders assess several stock charts every day.
These charts are plotted on logarithmic or arithmetic scales. They reveal various details about stocks, including their momentum, buying pressure, selling pressure, etc. Different day traders use different types of charts to perform technical analysis.
Some of the most popular types of technical analysis charts used by day traders include –
- Line Charts
- Candlestick Charts
- Renko Charts
- Point and Figure Charts
Over the years, traders and market analysts have developed several tools and techniques for interpreting these charts. Performing technical analysis on a stock doesn’t guarantee success for day traders. But, it increases their chances of making the right predictions.
Aspiring day traders must learn technical analysis to take their trading skills to the next level. On an appropriate day trading platform, they can find a range of technical indicators on different stocks.
They must use this information and conduct separate market research to improve their trading skills. Day trading is a risky business. But, with the right information, traders can find good stocks every day on their trading platforms and earn substantial profits.