In day trading, while techniques for entry, profit-taking, and stop-loss are important, I believe that stock selection—deciding which stocks to trade each day—is even more critical.
No matter how much you analyze the charts, if you choose a stock that doesn’t match the day’s market sentiment or one that is experiencing persistent heavy selling, the difficulty of the trade increases significantly.
In my case, I don’t just look at the top gainers list after the market opens and pick stocks at random.
I narrow down the stocks that are easy to trade in that day’s market by checking factors such as the percentage change from the previous day, gap-ups/gap-downs, trading volume after the open, indices like the Nikkei 225, and sector strength.
In this article, I will explain in detail how I choose day trading stocks every morning and the mindset behind it.
First, check whether it is up or down from the previous day
One of the first things I check after the market opens is the percentage change from the previous day.
By looking at whether the current stock price is above or below the previous day’s closing price, I use it as a factor to judge the strength or weakness of that stock.
However,
“It’s up from the previous day, so I’ll buy it”
“It’s down from the previous day, so I’ll short it”
This is not a simple judgment.
What is important is to compare the stock with the market as a whole.
For example, suppose the Nikkei 225 has fallen significantly, but a certain stock has maintained a positive percentage change from the previous day.
Since it is being bought even when there is selling pressure on the entire market, it can be considered to have relative strength.
Conversely, if a stock is down from the previous day even though the Nikkei 225 has risen significantly, it may be weaker than the overall market.
Even with the same +2% change from the previous day, the meaning is different on a day when the Nikkei 225 is up 3% versus a day when it is down 2%.
I am conscious of “whether it is strong or weak compared to the market sentiment,” rather than just the simple rate of price increase.
For gap-ups and gap-downs, check the movement after the market opens
Next, I check for GU and GD.
GU stands for Gap Up, which means opening at a price higher than the previous day’s closing price. GD stands for Gap Down, which refers to opening at a price lower than the previous day’s closing price.
Even here,
I do not judge that GU equals strong, so buy.
I do not judge that GD equals weak, so sell.
That is not how I make my decisions.
What I consider important is what happens after the market opens.
A stock that gapped up is maintaining its high price.
A stock that gapped up is being sold off in large quantities immediately after the open.
A stock that gapped down is seeing immediate buying and trying to return to the previous day’s closing price.
A stock that gapped down is continuing to hit new lows.
Even with the same GU or GD, the meaning changes significantly.
I also check the relationship with the market indices.
If the Nikkei 225 is rising but a stock that gapped up is being sold off heavily, that stock itself might be weak.
Conversely, if it maintains a gap up despite a weak market environment, it has the potential to be quite strong.
GU and GD are not the answer for entry, but are used as material to judge ‘from what position the stock started its day’.
Do not force a buy on stocks with heavy selling after the open
The next thing I look at is the actual trading after the open.
In particular, I try not to force a buy on stocks where heavy selling is continuing.
When a stock price plummets,
You might want to think, “It has dropped this much, so it should rebound soon, right?”
However, the period immediately after the market opens has the highest trading volume of the day, and it is a time when large amounts of capital tend to move.
If selling is clearly dominant, trying to trade against the trend just because a stock is “down too much” could result in you getting caught in a continued decline.
I look at more than just the rate of decline.
Is the selling continuing?
Is it hitting new lows?
Is there buying coming in at the lower price levels?
Is the individual stock failing to recover even when the index rebounds?
These are the things I look at.
I am particularly cautious when the index is recovering but the stock itself is not.
This is because it may not be falling due to a worsening market environment, but rather because the stock itself is being sold off.
There is no need to force yourself to try and pick the bottom.
If the selling is too strong, remove it from your list of candidates.
I believe that doing just this can reduce the number of difficult trades.
The core of my stock selection is the “market environment”.
The market environment is especially important in my day trading.
Instead of trading by looking only at individual stocks, I basically consider entries in line with the direction the overall market is moving.
If indices like the Nikkei 225 are strong, it becomes easier to consider buying, and if the index is weak, it becomes easier to consider short selling.
Of course, not all stocks move in the same direction as the Nikkei 225.
I want to think.
That is why,
“the direction of market sentiment”
and
“the strength of individual stocks”
are combined.
For example, when the Nikkei Stock Average is rising, I buy stocks that are already strong.
Conversely, when the Nikkei Stock Average is falling, I consider short-selling stocks that are already weak.
It is like aligning my trading with the flow of capital across the entire market.
I use this approach as the foundation for my stock selection.
Stock selection is just one part of day trading. In reality, I think about the entire process, from daily charts, market sentiment, and the opening bell, to entry and stop-loss. I have summarized the overall picture of day trading for beginners.
▶ [For Day Trading Beginners] A Thorough Guide to Getting Started, Basics, and How to Win at Day Trading
Targeting situations where strong stocks fall due to index movements
One of the patterns I like is “a situation where a stock that was originally strong temporarily drops due to a decline in the index.”
For example, suppose a stock is trading higher than the previous day and maintaining its individual strength.
However, the Nikkei Stock Average suddenly drops temporarily, and the individual stock falls along with it due to that influence.
Here, I do not simply
“buy because the stock price has fallen.”
That is not the case.
What is important is the index that follows.
The Nikkei Stock Average quickly rebounded and returned to a strong state.
On the other hand, individual stocks are still at lower levels.
In such cases, there is a possibility that buying will return to individual stocks as well.
Depending on the situation, I sometimes place limit orders to target pullbacks, such as when a stock that was originally strong has dropped to around 0% compared to the previous day.
The way of thinking is,
not to “buy stocks that have fallen”
but rather,
to “target stocks that are strong but have temporarily fallen due solely to market sentiment.”
This is what it means.
These two things may seem similar, but they are quite different.
The former is a simple contrarian trade, while the latter is a pullback strategy that utilizes the strength of the stock and the movement of the index.
Always check the momentum of the sector as well
Between individual stocks and the index lies the sector.
For example,
Semiconductor-related stocks are being bought across the board.
Funds are gathering in wire and cable stocks.
Bank stocks are strong.
Defense-related stocks are moving.
The place where market funds concentrate changes depending on the day.
Funds tend to flow easily into strong sectors, and multiple related stocks may move in the same direction.
Therefore, I don’t just look at the stocks I’m targeting; I also check the major stocks in the same sector.
For example, if I’m planning to buy semiconductor stocks, I check whether only the one stock I’m targeting is rising, or if the entire semiconductor sector is being bought.
The meaning changes depending on this.
Conversely, if only the stock I’m planning to buy is rising while other stocks in the same sector are falling one after another, I become cautious.
In my process,
“How are the indices?”
↓
“How is the sector?”
↓
“How is the individual stock within that context?”
I look at them in this order.
The image is to narrow down the scope little by little from the large flow of funds, and finally select an individual stock.
When choosing stocks, it is important not to look only at individual stocks, but to consider them in combination with daily charts, market sentiment, the Nikkei Average, and sectors. I have summarized my approach to finding “strong stocks” in detail here.
▶ [Day Trading Stock Selection] How to Find Strong Stocks from Daily Charts, Market Sentiment, and Indices
What I am looking for are “relatively strong stocks”
To summarize the stock selection process so far, what I am looking for from a buying perspective is not simply stocks whose prices are rising.
It is “stocks that are strong compared to their peers.”
For example, compare a stock that rises 3% on a day when the Nikkei 225 is up 3%, with a stock that rises 3% on a day when the Nikkei 225 is down 2%.
Although both are up 3% from the previous day, I do not consider them to have the same strength.
The latter is being bought despite selling pressure across the entire market.
In other words, there is a possibility that strong capital is flowing into that stock for some reason.
Furthermore, if even the sector is weak but that specific stock is strong, its relative strength is even more noticeable.
Conversely, if the Nikkei 225 and the sector are both strong, but that stock alone is weak, I take caution.
Rather than the numbers themselves,
“How is this stock moving while the surrounding market is moving in a certain way?”
It is important to look at that.
The flow of stock selection I perform every morning
In my case, I first check the strength or weakness of individual stocks by looking at their performance relative to the previous day.
Next, I check the gap-up or gap-down to understand the price level at which trading began.
Then, I observe the price movement after the market opens to confirm whether significant selling is continuing.
I overlay indices like the Nikkei 225 onto that.
Furthermore, I check the strength or weakness of the entire sector, and finally, I look for stocks that are relatively strong or weak within that context.
In the case of buying,
“Market sentiment is strong + sector is strong + individual stock is strong”
This state is easy to understand.
Additionally, I sometimes target strong individual stocks when they pull back due to a temporary decline in the index.
For selling, it is basically the opposite.
The market sentiment is weak.
The sector is also weak.
Among them, the individual stock is weak.
For stocks like these, it becomes easier to consider short selling.
The important thing is not to decide on an entry based on just one condition.
Look for stocks where multiple conditions point in the same direction.
This is my fundamental approach.
Stock selection changes the difficulty of trading
When people talk about day trading, I think they tend to focus on “where to buy,” “where to take profits,” and “where to cut losses.”
However, before that, there is the question of “what to trade.”
I use:
Day-over-day change.
Gap up/Gap down.
Trading volume after the market open.
Indices.
Sectors.
The relative strength of individual stocks.
I narrow down the stocks for the day by combining these factors.
And basically, I do not go against the overall trend, but rather follow the direction where the capital is flowing.
I cannot choose the perfect stock every time, and naturally, there are times when a stock moves in the opposite direction of my expectations even when the conditions are met.
Even so,
“I’m buying because it feels like it might go up”
instead of that,
“Why am I choosing this stock today?”
I trade only after I can explain this to myself. This is the fundamental mindset I keep in mind when selecting stocks every morning.
This is the fundamental mindset I keep in mind when selecting stocks every morning.
*This article introduces the day trading mindset and methods I personally practice and does not recommend the purchase or sale of any specific stock. Stock investment carries the risk of loss of principal. Please make your own final investment decisions, and please trade at your own risk.
For those who want to learn more about day trading
On YouTube, I hold a day trading LIVE stream every morning from 8:30 AM.
While watching the actual market, I provide real-time commentary on indices like the Nikkei 225, as well as decisions on entries, profit-taking, and exits.
▶ Click here for YouTube
[YouTube Link]
For those who want to learn in more detail
In my YouTube membership, I release content that cannot be fully conveyed in regular videos or LIVE streams through exclusive videos.
Past videos and LIVE streams are also changed to member-only content as time passes after their initial release.
▶ Click here for membership details
[Membership Link]
For those who want to practice day trading with a game
I believe that day trading is not just about memorizing knowledge, but also about repeatedly making decisions such as “buy, sell, wait, or exit” while watching the market.
Therefore, I have released a day trading game where you can practice the concepts I value in actual trading, such as indices, market conditions, and supply and demand, in a game format.
▶ Click here for the day trading game
【Link to the game sales note】
I also update day trading articles on note.
I write articles about day trading methods, mindsets, trading psychology, and the points I focus on in the actual market.
If you find my articles helpful, please follow me on note as well.
※This article is provided for informational purposes to help you learn about investment knowledge and concepts, and it does not recommend buying or selling any specific stocks or financial products. Investing carries the risk of loss, including the loss of principal. Please make actual investment decisions based on your own judgment and responsibility.
Read also
・How do I target stocks that gap up (GU)? The points I use to decide whether to buy or short
・How do I target rebounds for stocks that gap down (GD)? The points I focus on when shorting
・【Stock Day Trading Method Revealed】 A gap-up (GU) stock is falling… How long do you wait before buying?
