Intraday trading is a popular method of market speculation, involving traders who open and close trades within a single day. These individuals are known as intraday traders. To achieve success as a day trader, it is crucial to have the skill of selecting suitable stocks for intraday trading. Many traders struggle to make profits due to their inability to choose the right stocks for their day trades.
Trade Only in Liquid Stocks
The key to finding the best intraday stocks is to focus on selecting highly liquid stocks.
Choosing liquid stocks is a crucial intraday trading tip when it comes to picking the right stocks for day trading. Liquid stocks are characterized by large trading volumes, allowing traders to buy and sell larger quantities without significantly impacting the price. In contrast, less liquid stocks lack sufficient buyers, limiting the opportunity to trade in larger quantities. While some traders may argue that illiquid stocks offer greater opportunities for rapid price changes, statistics reveal that volatile stocks tend to exhibit larger price movements within a shorter timeframe. As a result, potential gains often diminish while the downside risk remains. It’s important to note that stock liquidity depends on the quality of trades placed by traders. For instance, a trade with a volume of 50,000 to 75,000 shares is considered sufficient for trades in the range of 50 to 100 Rs. However, when the volume is relatively low, the volume requirements increase significantly.
When selecting liquid stocks, it is also essential to consider liquidity at various price levels. Some stocks may exhibit high liquidity at lower price levels but experience a significant drop in volume after reaching a specific price zone. Understanding the liquidity variability at different price levels enables traders to make timely purchases of these stocks.
By focusing on highly liquid stocks, traders increase their chances of executing successful intraday trades with optimal liquidity and reduced slippage.
Stay Away from Volatile Stocks
It is important to be cautious when trading stocks with low daily volume or those that are expected to be influenced by unpredictable news. Intraday trading in such stocks is not recommended as they can exhibit volatility even after major announcements. Typically, mid-size stocks and low-cap stocks like S, T, and Z tend to be highly volatile and illiquid due to their low daily volumes.
However, it’s worth noting that a certain level of volatility can indicate an active market, presenting opportunities for intraday traders to profit. While there are no strict rules, many intraday traders consider stocks with price movements of around 3-5 percent on either side as suitable candidates for intraday trading.
By exercising caution and focusing on stocks with moderate volatility and reasonable liquidity, intraday traders can increase their chances of making profitable trades while minimizing the risks associated with highly volatile and illiquid stocks.
Trade in Good Correlation Stocks
When selecting stocks for intraday trading, it is beneficial to choose those that have a strong correlation with major sectors and indices. This means that when the overall market or a specific sector experiences an upward movement, the price of these stocks tends to increase as well. Such stocks that move in line with the sentiment of the group are considered reliable and often follow the expected movement of the sector.
For instance, the performance of information technology companies in India can be influenced by the strength of the Indian Rupee against the US Dollar. If the rupee strengthens, it can negatively impact the earnings of IT companies that depend on the US markets. Conversely, if the rupee weakens, it can lead to higher export incomes for these companies. By understanding the interplay between currency movements and sector performance, intraday traders can identify opportunities and make informed trading decisions. By focusing on stocks that exhibit a strong correlation with major sectors and indices, intraday traders can align their trades with broader market trends, increasing the likelihood of profitable outcomes.
Follow the Trend
One valuable tip for intraday trading is to recognize the importance of following the trend. When the stock market is experiencing a bullish phase, it is advantageous for traders to focus on identifying stocks with potential upward movement. Conversely, during a bearish market, it is advisable to look for stocks that are likely to decline. By aligning trades with the prevailing market trend, intraday traders can increase their chances of making profitable decisions. Understanding the direction in which the market is moving and selecting stocks accordingly can help traders capitalize on market momentum and optimize their trading strategies.
Pick after Research
Conducting thorough research is a crucial intraday trading tip that traders should always keep in mind. Many day traders tend to neglect this step, but it is essential for success. Start by identifying the relevant index and sectors of interest. Create a list of liquid stocks within these sectors, focusing on both technical analysis and fundamental factors such as support and resistance levels. By combining these analyses, traders can find suitable stocks for profitable intraday trading.
Intraday trading involves inherent risks, but speed is a key factor that can make a significant difference. Taking advantage of small price fluctuations within trading hours is challenging but rewarding. Utilizing platforms like Angel One Angel Eye allows traders to monitor stocks in real-time, enabling quick decision-making and profit booking.
Intraday trading revolves around executing and closing trades on the same day. For instance, buying 500 shares of Reliance in the morning at Rs.920 and selling them in the evening at Rs.928 can result in a profit of Rs.4000 (500×8) intraday. This type of trade does not involve delivery, as the net position at the end of the day is zero. Short-selling stocks without delivery is possible through intraday trading in the rolling settlements mode.
Choosing the right stocks for intraday trading is a critical step for day traders. The selected stocks should exhibit movement and predictability. Consider these six factors when selecting stocks for intraday trading, ensuring higher chances of success.
Is the stock liquid enough?
Market liquidity is a crucial factor to consider when selecting stocks for intraday trading. It is important to ensure that you can easily enter and exit positions without facing difficulties. Generally, small stocks and certain F&O stocks tend to have lower liquidity, while mid-cap stocks towards the higher end often exhibit better liquidity. Evaluating liquidity can be done by comparing the average daily volumes with the market capitalization of a stock.
One commonly used measure is the liquidity ratio, which is calculated by dividing the average daily volumes by the market capitalization. While there are no strict rules, a liquidity ratio of at least 10% can serve as a benchmark for considering a stock for intraday trading.
Another aspect to consider is the impact cost of buying or selling a stock. Impact cost refers to the effect on the stock price when placing large buy or sell orders. High impact cost indicates higher risk in intraday trading, as it can lead to unfavorable prices for large orders. Therefore, it is advisable to choose stocks with low impact cost, as it often reflects better liquidity and can contribute to more favourable intraday trade economics.
Is the Stock Widely Owned?
To gather information about the ownership pattern of a stock, you can refer to the exchange’s website. Additionally, analyzing the trading pattern of the stock can provide valuable insights. It is important to note that stocks with limited ownership tend to exhibit higher volatility and are more susceptible to hitting circuit filters. This is because a small group of market operators can easily manipulate such stocks when they are not widely owned. As an intraday trader, it is advisable to prioritize stocks that are liquid and widely owned. This approach can significantly reduce your risk exposure.
Does the Stock Sustain Narrow Tick Spreads?
In intraday trading, the tick size becomes a crucial factor to consider alongside liquidity and impact cost. The tick size represents the minimum price increment between two orders. It is important to ensure that there is sufficient volume available within each tick for effective intraday trading. Placing an order and realizing that the execution occurred several ticks away can be detrimental to your intraday strategy. As intraday traders aim to capitalize on trends, market orders are commonly used. Therefore, selecting stocks with smaller tick gaps is advantageous as it allows for smoother order execution and enhances trading efficiency.
Does it Show Clear and Decipherable Chart Patterns?
As intraday traders, it is crucial to utilize technical charts as a primary tool for analysis. Developing the ability to interpret charts independently is important, but equally essential is selecting stocks that exhibit clear and identifiable chart patterns. Trading in stocks with insufficient historical data or unclear patterns can be challenging and unpredictable. It is through observing and analyzing a stock’s long history that traders can identify recurring patterns and make informed trading decisions based on these patterns. Therefore, prioritize selecting stocks with a substantial historical record and distinct chart patterns to enhance your intraday trading strategy.
What is the Price Sensitivity to News Flows?
Intraday traders rely on two important factors for their trades: chart patterns and sensitivity to news. It is essential to choose stocks that react strongly to news events as this enables traders to capitalize on price movements. The strategy of buying on expectations and selling on announcements can be effective in intraday trading.
Discipline plays a crucial role in intraday trading, and it starts with selecting the right stocks. It is important to keep the stock universe limited to ensure effective tracking of fundamentals, technicals, and news flows. Finding the right stock for intraday trading is a daily challenge, and the key to successful trading lies in the proper selection of stocks. Consider the following tips when choosing stocks for intraday trading:
How to Pick Best Stocks for Intraday Trading? :
Shares Volume
Volume is a significant factor to consider when engaging in intraday trading. It refers to the total number of shares traded in the market at a given time. As traders, it is advisable to focus on stocks that exhibit high trading volume. Higher volume indicates greater market activity and liquidity, which can lead to smoother transactions and better price discovery. By selecting stocks with substantial volume, intraday traders can potentially benefit from improved trade execution and reduced slippage.
Stocks of the Day
Stocks that are influenced by positive news are often expected to demonstrate favourable performance. Traders can capitalize on these stocks, which tend to exhibit significant price movements accompanied by high trading volume. Such stocks present potential opportunities for intraday trading, allowing traders to benefit from short-term price fluctuations driven by positive market sentiment. By carefully analysing the news and selecting stocks with promising prospects, intraday traders can strategically position themselves for potential profits.
Week’s Movement
Conducting a thorough analysis of stocks that consistently exhibit positive or negative price movements over the previous week can serve as a valuable tool for selecting stocks in intraday trading. By studying the trend and movement patterns of these stocks, traders can gain insights into their potential performance. This analysis allows traders to identify stocks that have shown a consistent positive or negative trend, providing them with a higher probability of making profitable intraday trades.
Resistance Level
It is important to keep an eye on stocks that have recently broken through resistance levels and are exhibiting upward momentum. These stocks have shown the potential to continue their upward movement and are often favoured by traders. By identifying and monitoring such stocks, traders can capitalize on the positive price action and potentially make profitable intraday trades.
Trading in Few Stocklists
Many intraday traders prefer to specialize in trading specific shares. They dedicate their time and efforts to thoroughly studying the movement of these shares. This focused approach is a popular intraday strategy adopted by traders who believe in gaining in-depth knowledge of specific stocks. By specializing in particular shares, traders aim to enhance their understanding of price patterns and increase their chances of making successful intraday trades.
Top Gainers and Losers
In the stock market, there are shares that fall under the category of top gainers and top losers. These shares often exhibit significant price movements, making them attractive for intraday trading opportunities. However, it is crucial to closely monitor these shares before initiating any trades. By keeping a vigilant eye on these shares, traders can identify potential trading opportunities and make informed decisions.
Conclusion
Skilled intraday traders have honed their abilities to identify the most promising stocks for intraday trading. Selecting the right stocks is vital for achieving profitability in intraday trading, and that’s where technical analysis becomes your trusted companion. Over time, you’ll develop your own effective methods for choosing the best intraday stocks. Remember to rely on data-driven decisions and avoid being influenced by emotional biases that can hinder your trading success.
