The most important step in day trading is the selection of stocks. As an intraday trader, it becomes essential to know how to choose stock for intraday in order to succeed. Usually, traders are not able to earn profits because of not pick the appropriate stocks for their portfolio. Let us first see why stock selection for intraday is so important and how to choose stock for intraday
Before going to this article if you are new to the stock market, you may want to refresh with a few of the following articles before proceeding
How to choose stock for Intraday
FOCUS ON HIGHLY LIQUID STOCKS ONLY
Liquidity is the most important while choosing the right stocks for intraday trading.
Liquid stocks are those that have a large volume through the intraday trading. The important reasons why choose the highly liquid stocks for intraday trading.
You can buy and sell large volumes without impacting the trend you want to benefit from, lesser liquid stocks do not provide traders with the opportunity to purchase and sell larger quantities due to the lack of too many buyers. The trades that you align have the ability to be rapidly performed. As intraday trading depends on accurate timing, avoiding any delay in execution is dominant to success.
MEDIUM VOLATILITY:
Intraday trading success depends on daily price movements. If you choose trading stocks that have a sultry price, you will not find an opportunity to trade them profitably. Therefore, you have to select stocks that involve a price movement every day.
You can filter the stocks based on movements either Rupee or percentage value of the stock. Stocks that tend to move 2-3% or more than that per day have consistently large intraday moves to trade. The same is true for stocks that tend to move more than 15 per day.
STOCKS THAT SHOW CLEAR TECHNICAL PATTERNS
If you are an intraday trader, you will need to comprehensively use technical charts and patterns to make gains in intraday trading, you need to frame your own strategy and system for trading intraday. Check the historical data and patterns of the stock and read the charts. If the chart pattern is not too clear, the past patterns are not necessarily a good replication of the future. Be wary of stocks that are either too volatile or where the supports and resistances keep shifting. Also, avoid stocks that give too many false breakouts on either side of the trend-line.
TRADE WITH THE TREND:
An intraday trading for choosing the right stock is to opt for those that have a higher relationship with sectors and indices. This means when the sector or the index perceives an upward movement, the stock price also shows upward movement. For example, the strengthening of the Indian Rupee against the Dollar will generally affect all IT (information technology) companies dependent on the US markets. A stronger rupee indicates lower earnings for the IT companies and weakening rupee will result in higher incomes for IT companies.
STRONG VS WEAK STOCKS:
When you identify liquid and medium volatile stocks that move with the trend, they then divide them into relatively strong and weak stocks. Strong stocks are that move in the same direction as the market (index or sector), but more strongly. For example, if the index rises by, say, 1.5%, then a strong stock tends to rise higher say 3%. Weak stocks, in contrast, tend to rise/fall at a slower pace than the index. Smart traders usually prefer strong stocks in an uptrend and weak stocks in a downtrend to lower the potential for loss.
How to choose stock for Intraday Trading?
For a trader, picking the right stocks might seem like a challenge. However, it should not dissuade you from reconnoitring capital creation opportunities in the stock market. Here are a few criteria which will simplify the process:
Stocks Volume
One of the main criteria while intraday trading is the volume of the stocks. The volume indicates total number of shares that are traded in a market at a given time period. It is mostly recommended to purchase stocks for intraday trading that are high in volume.
Resistance level
The resistance level denotes to a price beyond which a share is not able to rise. The major reason for this behaviour could be a prodigious level of supply of the stocks at a particular price level in the market. As an intraday trader, you may look out for which have broken resistance levels and are moving upwards
Stocks in the news
Contingent on good news, some stocks are predictable to perform well. Such stocks are expected to move in either direction with good volume. These type of stocks can be used for intraday trading.
Week’s movement
Movement of stocks that are constantly closing in negative/positive for the previous one week. An assessment of this motion will assist you to select intraday trading stocks.
Trading in few stockists
Some intraday traders involve in trading only in specific stocks. This is because these traders involve in detailed study of stock movement. This is one of the main intraday strategies that are followed by traders.
Top gainers and losers
While some shares come under top gainers, others come under top losers. Such shares may provide fairly good movements. Keep a close look at these to start trading.