How to Find Great Stocks in 4 Steps for Day Trading
With the NASDAQ & NYSE combined, you have over 4,000 publicly traded stocks available. One critical thing I’ve learned, is that I want to pick the best stocks of a given sector. The reason for that is because the most heavily indexed stocks for a sector typically have high volume, high open interest, which will add the amount of liquidity that you’re looking for.
Let’s explore a simple way to find the best performing stocks in a sector so you can always have a list of stocks to trade when a sector cycle occurs.
1. Visit Sector SPDR (sectorspdr.com)
I love to use this website because it shows me a list of all 11 sectors in the S&P 500 and it will show me the performance of the sector from a selected timeframe–I usually like to select the 1 month timeframe.
Another pro about this site, is that all the results I’m looking for will show on the right side–I don’t have to leave pages to do extra research.
2. Select every sector
When you select a sector, on the right hand side, you’ll be shown a table of publicly traded companies–they’re usually filtered by most % change by the selected timeframe.
But when you’re looking trade options, the best performing stocks by percentage might not be the best approach. Because, if you’re looking to do a scalp trade or a day trade, you need a stock that has good volume to make it easy for you to buy and sell.
If the contracts have low volume, then it will not enough liquidity.
Let’s look at a stock option contracts such Lamb Weston Holdings Inc. ($LW), that had a +12% price increase but that has no liquidity on the option contracts.
The minimum volume size we’re looking for is 500. As we can see, even though Lamb Weston Holdings Inc. ($LW) is performing well, their option contracts lack liquidity and interest from other retail investors.
Now let’s look for stocks that have great liquidity for you to trade options with!
3. Double click the Index Weight filter
To find stocks with great volume, you want to double click the Index Weight filter–typically, the heaviest Index Weighted stocks in a given sector, has the best volume, and are the best stocks to trade options if you’re looking to do a scalp trade or a day trade.
Let’s look at at Procter & Gamble ($PG) option tree:
If you take a look at the $145 strike call contract, you can see in the far right that the volume is above 500. This makes trading Procter & Gamble a great stock to trade.
Let’s look at Coca-Cola Co ($KO) option tree:
We can see that many of their strike prices has volume well over +1,000–which makes another great stock to trade.
4. Stock research
Like shown in steps 2 & 4, just doing your own due diligence that option contracts for a stock have:
- Volume 500 or above
- Open Interest 100 or above
- Implied Volatility below 80%
If you’d like to read more in depth about how to pick the right option contracts, give this article a read: “An easy guide to picking the right option contract for option trading“
Bonus: Top 10 weighted stocks for each sector
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