How to Choose Stocks for Intraday Trading?

Selecting Best Stocks for Intraday Trading

The key to choosing stocks for intraday trading is to analyze the market situation in real-time. To make good decisions, you need to know how the price moves, why it's moving, and what other traders are doing. You also need to understand what your broker's position is.

Learn more about: What is Intraday Trading?

You should analyze the markets by looking at their technical indicators. Technical analysis can help you determine where a market is going. It will not tell you when it will get there, but you should rely on your news analysis and other factors to determine that.

How to Choose Stocks for Intraday Trading

Stock selection- Look for stocks that have a high volume

The difference between low-risk and high-risk stocks is not just their volatility. It is also their price. If you buy high-risk stocks, you need to get paid more for the risk you are taking.

Some high-risk stocks pay off by becoming high growth companies. If you buy these, you want to hold them for several years while they grow into their valuations.

Other high-risk stocks pay off by becoming takeover candidates. These are the ones to buy for intraday trading. They can double in price in a day when a takeover rumour surfaces and then reverse themselves when the deal falls through or competition emerges.

If you trade this kind of stock, you want it to be volatile enough that there will be trades of this magnitude -- though not so volatile that there will also be short term trades against you.

Stock Selection- Look for catalysts to make the market move

The market reveals the most valuable information in the least flattering way. A stock quote flashes a bid or an ask, so if you can predict which direction the market will move, the odds are good that your guess will be reflected in the price. And yet, you have less than a second to make your decision.

How can you take advantage of this?

It's best to think of it as a game, not unlike blackjack or poker. You have two choices: You can either guess whether the price will go up or down, or you can think how much it will change.

If you believe that a stock is going up but that no one else does, then it might be available cheaply; and if you're right, your profit potential is unlimited. If everyone thinks a stock is going down and you think it's going up, then everyone else will sell, and your profit potential is similarly high; but if you're wrong, you'll lose money instead of breaking even.

But there's also a third option: You might believe that a stock will move by some amount, say 5 per cent, and if so, you would like to profit from this movement while limiting your risk.

Intraday Trading Strategies

Intraday trading is a business of guessing which companies will be up and which down. It's the same as any other kind of investing, except that you have to do it all day long.

And for that reason, it's a lot harder to find places to invest. You can't just run a portfolio of stocks and hope they'll go up over time. There are two reasons for this:

One is that there are too many stocks out there. You can't follow them all, and neither can your broker. The other is that the market never closes, so you never have a chance to take a break from the news feeds and the tweets.

The consequence of these two things taken together is that intraday trading tends to be dominated by people trying to beat the news rather than people trying to pick stocks.

This means that intraday trading follows the same principles as day trading. In particular, it's not about buying good companies at reasonable prices; it's about buying companies whose information has just been released in a way that makes them look good now.

Types of strategies day traders use

Scalping: Scalpers focus on making small profits from tiny price changes throughout the day. traders buy and sell stocks rapidly, aiming to profit from small price movements. By making many trades, they accumulate gains from these small price differences.

Momentum Trading: Momentum traders buy and sell based on recent price trends. They believe that stocks moving in a particular direction will continue to do so. If a stock has been rising, they might buy it, hoping the upward trend will continue, allowing them to profit from these short term movements.

Breakout Trading: This strategy involves looking for stocks nearing a crucial price point, known as a breakout level. Traders identify key support and resistance levels and buy stocks when the price breaks through resistance. This often leads to a price increase, offering a chance to make a good profit.

Trend Trading: Trend traders analyze the current market trend and make trades that align with it. They use tools like moving averages, trendlines, and chart patterns to determine the direction of the market. If the trend is upward, they buy stocks to benefit from the rising prices.

Contrarian Trading: Contrarian traders go against the crowd. They buy stocks when most people are selling and sell when others are buying. They believe that market sentiment can lead to temporary price changes that don’t reflect the stock's true value and that prices will eventually correct themselves.

News Trading: News traders focus on the impact of news and events on stock prices. They watch economic and financial news closely and trade based on how they think the news will affect stock prices. For instance, positive news might lead them to buy, while negative news could prompt them to sell.

By understanding and applying these strategies, traders can better navigate the stock market and make informed decisions.
 

Pick hot stocks for intraday trading

Intraday trading is the act of buying low and selling high as quickly as possible. You can do it with any stock, but it is straightforward with those that trade in an immense volume, have low trading costs, and have a steady price trend.

In the US, these stocks tend to be big brand-name companies that people are familiar with. In India, they tend to be financial institutions or commodity companies. They don't have to be large-caps; midcaps and small-caps also work.

Intraday trading is not for those who are impatient. There is no shortcut to it. There is, however, a way to make your life easier and your chances of success higher.

One idea is to look at the behaviour of the stocks and see if they are moving in a particular pattern. This can help you decide how you should trade them.

Tips for setting limits for your losses in Intraday Trading

The following tips will tell you how to go about it:

• Look for stocks that have been moving in the same direction for the past couple of hours. This is because there will be many people already interested in buying or selling this stock which will lead to a high volume on that day.
• Choose stocks that have been moving against each other lately. This might indicate that one stock has been bought more than others and might be a good candidate for a sell order, while the other stock would be a good buy order candidate.

The first tip is aimed at those who want to follow quick trends, while the second tip would be helpful if you have a longer time frame set up – say an hour or more – during which you would want to trade these stocks as they move against each other.

You can look at the news about a company and calculate how it should affect the price. You can look at what other investors are doing and figure how their actions should affect the price. And you can say with great confidence what the right price for a stock should be. But you'll be wrong.

Wrapping Up 

Selecting the right stocks for intraday trading isn't easy. You have to know a lot about it. There are so many resources today to get stock data, track, and forecast.

Using these tools at your disposal, you must choose stocks wisely depending on your portfolio size and risk appetite.