How I Pick Stocks for Day Trading?

Different trading styles dictate different stock picking methods. Today, I would like to share mine with you. 

If you have been with me for a while, you perhaps already know my trading style. If you are new, then my trading style is High Frequency Trading (HFT). Do not confuse scalping with HFT. They are totally different. I used to think HFT was scalping due to the sheer number of my trades.  After looking deep into my past trading, I found I did try my best to hold onto a winner.

I normally select a basket of 50 stocks every month and choose the strongest 5-7 and the weakest 5-7 among them every day for each direction (long and short). How do I select these 50 stocks every month? First, they should be liquid stocks, which include the mid cap and the large cap.  Small cap is fine once in a while.  But micro cap and mega cap are absolutely excluded. 

Second, it should have a high beta.  Beta is used to measure the volatility of a stock against S&P 500.  If it is less than 1, it means this stock is pretty flat or less volatile than average stocks. Hence, there are relatively few opportunities in either direction.  You can find the beta of your picks on Google Finance.


For exmaple, OSK (Oshkosh Corporation) has a beta of 2.77,which makes it a solid day trading stock. RIMM(Research In Motion Limited) has a beta of 1.88, which is very nice too.

On the other side, WMT(Wal-Mart Stores, Inc.) has a beta of 0.26, which means it moves like a 90 year old most of the time.

I recommend stocks with a beta > 1 at least.

Third is that the prices of my picks are normally more than 30 dollars.  Occasionally, I drift into stocks in 20s. I never touch anything in the teens or below.  It is just a personal taste though.

Fourth is that the basket should be broad enough to accommodate a lot of different sectors

It is easy to put all these criteria into a scanner. With a click of a button, it will spit out things you want.  There are a few free scanners you can use. There are also good commercial ones too. I will talk about them in the future.

Ok, now we have a basket of 50 candidates. Do we need to scan them constantly during our trading sessions? No. It is a common mistake that a lot of traders make. They are so busy scanning the market that they can not even focus on trading. A lot of them constantly chase hot stocks. By the time, they find a stock hot, it is already too late.  For example, the OSK trade I took last Friday.  See the timestamp I posted my entry. It just moved too fast for most people to jump in.

Before the market open, some stocks from my basket are already showing activity. So I normally choose 5-7 strongest and 5-7 weakest and then watch them closely throughout the day. Among these 10 or so stocks, one or 2 are bound to make a move every day. My objective is to catch them and keep my losers very small in the meantime. 

In addition, these 10 stocks should be from different sectors.  You can not have ABX, GG Or AEM at the same time since they are all gold related stocks.

As for how to trade them is a totally different story because there are so many different patterns. To have a pair of egales’ eyes to recognise these patterns requires that you work until your tail falls off.

Here is the trade I took in OSK last Friday. Click on the image to have a better view.

Here is the recap

Step 1: Select a basket of 50 stocks which should be 

High beta
30 dollar above(optional)
A diverisfied basket

You can just copy from my watch list. OSK is sitting right in the list.

Step 2:  Select 10-12 out of the 50 every day

 A few strong ones for the long side and a few weak ones for the shrot side
 Watch these guys only.
They should be diversified too.

It is my main method. I also trade news related stocks.

Extremely hard work and a few solid trading books are what you need to become a successful trader. There is no shortcut!
By the way, you can always check out my portfolio, in which I post my trades real time.

Would you like to become an active trader like me? Would you like to receive the latest trading ideas or other updates from my blog?
Then join hundreds of others on my mailing list below. It is totally free and easy to opt-out.