Intraday Stock Tips: How to Select Stocks for Intraday
Intraday trading is growing in popularity among market participants. It can be a profitable journey with the right knowledge and strategies. The practice requires traders to move ahead with discipline in a variety of areas. A vital area of discipline is intraday stock selection.
As the margin of error is low, traders need to select stocks accurately. Intraday trade positions must be mandatorily squared off before market closing. Thus, you cannot just trade intraday on any script. You need to be selective.
Also Read: Most accurate Intraday Trading Indicators
Before we look at the stock selection rules for intraday trading, let us first understand what intraday trading is all about.
What is intraday trading?
Intraday trading involves buying and selling stocks within a trading day. You can either make a buy transaction and close it for an equivalent sell transaction or vice versa.
For instance, if you buy 300 shares of a particular company in the morning at ₹700 and sell them by the evening at ₹710, you can book a gain of ₹3,000 (300x10) intraday. At the end of the day, there is no delivery, and your net position is zero.
If you feel that the stock will go down, you can sell in the morning and rebuy in the evening.
How to pick stocks for day trading in India?
A day trader cannot take delivery and hold on to the stock. A mistake can result in heavy losses. So, if you want to buy and sell stocks within one day, there are certain features they should have. These features increase your chances of earning profits.
Let’s take a look at how to choose stocks for intraday trading keeping the following factors in mind:
The liquidity of a stock is the biggest concern for a day trader. Since buying and selling of stocks happen within the same day, it is vital to invest in liquid stock. You can buy and sell large quantities of stocks having high volumes without affecting their price.
A liquid stock gives you the comfort to buy or sell the stock whenever required. As a result, you can grab potential gains that occur due to large price movements in a day.
Volatility is an essential aspect to keep in mind during intraday stock selection. Day traders earn profits when the stock price rises or falls as per their expectations. If the prices do not move as expected, traders can book losses. For a volatile stock price, traders can book more intraday orders and gain from favourable price movements.
However, investing in highly volatile stocks can be counterproductive if there is a sharp drop or rise in price. It is ideal to buy stocks that witness a movement of 3 to 5% on either side.
- Market trends
The movement of certain stocks is dependent on the market trend. If you want to maximize your profits in intraday trading, you must follow the market trend. Pick a stock that can increase when the market undergoes a bull run and vice versa.
- Sector trends
The economy has various sectors, such as FMCG, technology, automobile, banking, oil and gas, pharmaceuticals, education, etc. A trader should watch out for intraday stock tips based on the performance of different sectors of the economy.
If there is a sector that has been consolidating for over months and is set to break out, it is a good idea to invest in companies belonging to that sector.
One of the most important steps in intraday trading is the selection of the right stock. However, you cannot learn the techniques of intraday stock selection in one day. There are various trends, tips, and strategies for selecting a stock. Choosing a reputable and expert stockbroker can help as you receive information based on quality research and analytics.
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Most Accurate Intraday Trading Indicators
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How to Make Profit in Intraday?
Intraday trading is a high-risk stock trading avenue that allows investors to benefit from the volatility in the stock markets. While you might have heard stories about people making a fortune in stock markets, there are many investors who have lost money too. Hence, it is important to use the right tools and create a strategy that can help you book profits in intraday trading.
Frequently Asked Questions
When an intraday trader takes a position, he/she must evaluate how liquid the stock is. It would be tough to square off the trade by market close if the stock is not traded in large quantities. For instance, if you purchase small-cap or micro-cap stocks, this problem is common. Conversely, large caps and upper-range-mid-caps are liquid enough for intraday trades. These stocks attract buyers and sellers in larger numbers throughout the trading day.
However, a stock’s liquidity varies. Thus, it is a good idea to put a number on it. To calculate the stock’s liquidity, you can use the formula:
Liquidity = Average daily volumes traded/Market capitalization
An essential intraday stock selection guideline suggests that you avoid trading stocks with a liquidity ratio below 10%.
A news-sensitive script reacts to any positive or negative developments in the media. Consequently, it offers good day trading opportunities. You can pick hints about the movement in the stock’s price by analyzing news and then place your buy and sell orders accordingly.
Investors generally follow three methods to select stocks for intraday trading. These include:
- News or result based stock selection
- Aftermarket closed
- Live market stock selection