Hi, I am Gunjan Grover.
Today we will talk about that question that I get frequently.
How to select stocks for intraday trading?
But before that, let’s understand what intraday trading is.
Intraday trading is about buying and selling a security on the same day in an attempt to book profits.
It is a kind of a market order where you don’t plan to take delivery or fulfill it.
In other words, if you place an intraday order to buy shares, you don’t want to buy them
But are hoping for the share price to increase and sell them before the end of the trading day.
These orders also allow you to sell shares first even if you don’t own them and buy them during the day to square off the transaction.
In intraday trading, success relies on choosing the right stocks since you only have a few hours before squaring off your position.
Hence, picking the right stock is crucial.
Let’s understand a few suggestions to help you in sharpening stock selection strategy.
Before we talk about how to select a stock for intraday, it is important to note a few points.
Like as a day-trader you don’t have the luxury of holding on to the stock
A day-trader's one wrong decision can lead to heavy losses.
Typically, if you want to buy and sell any commodity within one day, it should have certain features like -
1. High demand or liquidity
2. Price fluctuations so that you can buy low and sell high (volatility)
3. Market trends
4. Sector trends
5. Momentum of stocks
6. Technical Analysis
Here is an example to help understand this.
Let’s say that you want to buy and sell onions for profit.
You will succeed if there is a constant trade happening in onions throughout the day
That is, prices are going up and down based on the demand and supply of the commodity onions.
Also, there should be enough data to support the fact that the overall market is doing good, the business and the onion sector are booming.
Further, recent momentum should be in favor of trading in onions.
If these factors are in place, you can be in a good position to earn profits.
The same approach applies in selecting stocks for intraday trading.
Here are the things to consider before selecting stocks for Intraday.
The first is Liquidity.
As explained in the example above, the liquidity of the said stock is to be high to ensure that you can buy and sell stocks at any point.
Another important aspect of buying stocks with high liquidity is that they usually have large volumes.
Hence, you can buy and sell large quantities without impacting the stock price.
While choosing highly liquid stocks, ensure that you assess the liquidity at different price levels.
While some stocks can have high liquidity at low prices, the volumes can drop drastically beyond a certain level.
Understanding this can help you buy them at the right time.
The second point is volatility which should be from medium to high.
Day traders benefit only when the price moves up or down as per their expectations.
Sometimes traders can book losses if the price moves against expectations.
If the stock price is volatile, then they can place more intraday orders and benefit from favorable price movements.
But note that, buying highly volatile stocks can be counterproductive if the drop or rise is too steep.
While there is no rule, most intraday traders prefer stocks that tend to move between 3-5% on either side.
Now, let’s move to the third important point which is market trends.
Based on the economic, political, social, and other factors, markets tend to move either upward or downward.
Stocks have a positive or negative correlation with the markets.
This means that if the markets rise, the stock prices can rise or fall respectively.
Hence, keeping this correlation in mind is important while buying stocks for intraday trades.
The 4th point is sector trends.
The market can be divided into various sectors including technology, pharmaceuticals, automobile, oil & gas, FMCG, and banking.
As an intraday trader, it is important to keep abreast of the performance of all sectors in the economy.
If you identify any sector or sectors that have been consolidating over months and are ready to break out,
then you can look for companies from the said sector to invest in.
Also, if you identify any stocks that have made substantial gains but you missed capitalizing on the rise,
then you can look at peer stocks from the same sector that is in the possible-breakout area.
The 5th point is the momentum of stocks.
The speed of change in the price of a stock over time is known as the momentum of the stock.
This can help you determine the strength of an upward or downward trend in the price of the stock.
If the stock price moves with the strength of the momentum, then the said stock is called a momentum stock.
Such stocks are used by day traders for going long or going short and earning a profit.
Now, let’s move to the next point which is technical analysis.
Apart from the momentum of stocks, various strategies can help you conduct the technical analysis of the stock to identify buy or sell signals.
You can look at stocks that display gaps in the stock prices in either direction.
These gaps can be earning opportunities for day traders.
You can also use technical analysis to find stocks that are breaking their support and resistance levels.
So, these were the points that will be helpful for you while selecting stocks for intraday trading.
Remember, buying the right stocks is important to generate profits in intraday trading.
While the above pointers can help you find them, with time, you will discover ways in which stock selection works best for you.
With all these points, you should stay objective and data-driven and avoid emotion-driven decisions to make money via intraday trading.
We hope you liked today’s episode so don't forget to like and subscribe.
Also, we don't recommend any stock, and all of these are for educational purposes.
On that note, here's me Gunjan Grover. Signing off.
Bye-bye. Take care. Keep calm and Invest on.