There are hundreds of stocks to choose between, and day traders may pick nearly any stocks they wish. So, the first step as a day trader seems to be figuring out what to trade. Once a trading opportunity has been found (one stock, numerous stocks, exchange-traded funds ETFs, etc.), the next stage is coming up with strategies to benefit from them.
- Day traders use intraday methods to profit from fluctuations in the price of a specific asset throughout the course of a single trading day.
- When choosing stocks for day trading, look for equities with plenty of liquidity, moderate to high volatility, and large numbers of follower group members.
- Identifying the good stocks for intraday trading means separating the target market’s needs from any surrounding noise and profiting on that trend afterwards.
Before moving further, I would mention that the stock market is highly volatile, especially for intraday traders. So if you are a beginner, it is highly recommended that you consider joining a good stock market institute and learn trading from experts. Otherwise, there are chances that you might lose all your money.
Tips on Selecting Stocks for Intraday Trading
1. Always trade in the stocks with high liquidity
The selection of highly liquid stocks is the most important criterion for determining the finest intraday stocks. When selecting the correct stocks to trade during the day, liquidity is the most crucial intraday trading tip to keep in mind. Buying and selling bigger quantities of liquid stocks without significantly impacting the price is possible because of the high trading volume of liquid equities. Less liquid stocks often do not offer traders the option to purchase and sell bigger volumes of shares owing to a lack of sufficient demand on the market. Some traders may claim that illiquid equities provide greater potential for profit because of their quick price changes.
If you’re looking for liquid stocks, don’t forget to look at their liquidity at different price levels. It is possible to discover equities that are extremely liquid at a lower price level. However, the volume declines precipitously after the stock has reached a specific price level. The ability to recognise the fluctuation of liquidity at various price levels will assist you in purchasing these stocks at the appropriate moment.
2. Avoid Highly Volatile Stocks
It is frequently observed that stocks with a low daily volume of traded shares or those where a significant piece of news is likely to be released may move unpredictably. Even after the significant news has been announced, the stock may continue to fluctuate in response to it. It is suggested that traders refrain from engaging in intraday trading in such equities. Minimal volatile stocks are traded in the mid-cap group, but most equities traded in the small-cap categories such as S, T, and Z are extremely volatile. These stocks are not only volatile, but they also have low daily trading volumes, rendering them illiquid.
The stock price movement determines the effectiveness of intraday transactions during the day. However, investors should resist investing in particularly volatile equities since the price movement may become negative. Investing in volatile equities may appear an appealing proposition, but the outcome may be less than desired. You should always use a stop loss to protect your profits while trading intraday. If the price falls and hits your stop-loss price, the stop-loss will be triggered, and the current trade will be automatically closed.
3. Research before picking up stocks
Unfortunately, the majority of day traders do not conduct their own research. It is advised that you first identify the index and then look for sectors that are of interest to you. The following step is to compile a list of numerous stocks that fall into each category. Traders do not have to include sector leaders in their portfolios; instead, they should look for liquid equities. Technical research, such as finding support and resistance levels and examining the fundamentals of these stocks, can assist traders in identifying the most profitable stocks for intraday and day trading.
Intraday trading is fraught with danger, but the ability to act quickly may make all the difference. It is not a simple undertaking to generate gains from modest price variations within the short trading hours available.
4. Invest in stocks with strong correlations
If you want to pick the ideal stock for the day, one intraday tip is to look for stocks that are more connected with significant sectors and indexes. The stock price rises in tandem with the index or sector when the index or sector has an upward trend. Stocks that move in accordance with the emotion of the group are dependable and frequently move in the same direction as the sector’s projected development. For example, strengthening the Indian Rupee versus the US Dollar will have a broader impact on all information technology businesses that rely on the US market for their revenue. Increased profitability for IT businesses is associated with a stronger rupee, whereas a falling rupee is associated with increased export revenues.
5. Keep up with the change
One of the most crucial intraday trading tips is to keep in mind that it is always favourable to trade with the current trend. A bull market in the stock market necessitates traders’ efforts to find stocks that have the potential to increase in the future. On the other hand, it is beneficial to look for equities that are anticipated to decrease in value during a bear market.
6. Narrow Tick Spreads Sustaining Stock
This is an extension of the previous liquidity and impact costs argument. However, in the case of an intraday trader, the tick becomes quite essential. The tick represents the smallest possible gap between two orders. To qualify for in an intraday transaction, there must be sufficient volume on each tick. You don’t want to make an order only to discover that your order execution has occurred many ticks earlier than you anticipated. In intraday trades, you attempt to profit from trends, and as a result, you often make market orders. As a result, the tick gap becomes an important factor to consider for intraday stock selection. When it comes to tick gaps, the smaller they are, the better.
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So here are the 6 points you need to remember to select stocks for intraday trading. But still, if you are not confident, I will suggest you join The Thought Tree. They have expert faculty and can help you in your trading journey.