How to Select Stocks for Intraday Trading

The first step to successful intraday trading is selecting the right stock that is highly liquid and has price volatility.  This is important so that you do not get stuck in day trades and have enough price movements to trade. 

Selecting the right stock will require you to do some research and collect news and information about the company. 

Tips to Select Stocks for Intraday Trading in India

Keep the following points in mind when you are selecting stocks for day trading:

#1. Choose Liquid Stocks 

Liquid stocks are stocks that trade in large volumes on a daily basis. This means, at any point in time, there are enough buyers and sellers in the market. 

Liquid stocks give you the flexibility to enter or exit a trading position. If the stock is not liquid, then you may not find buyers when you want to sell or sellers when you want to buy a particular stock.

With illiquid stocks, it is very difficult to use trading strategies. As a beginner trader, you should first trade in NIFTY 100 stocks only as these stocks are the most liquid.

#2. Choose Stocks Showing Volatility

Volatility creates variation in stock prices. If a stock is not volatile at all, which means that the price shows little movement, you will not be able to make a profitable trade. 

Some stocks move 2-3% daily in either direction and some stocks hardly move daily but spike up or down on some days. You will only be able to capture profit in stocks with price movement, hence selecting stocks with sufficient volatility. 

You can check whether a stock is volatile or not by a simple glance at its price chart.

#3. Follow a Good News Website/App to Stay Updated With Market Action

To be a good trader, you should also keep yourself updated on macro events and at least an overall idea of global markets. 

World markets are now so interlinked that often negative sentiment in one country’s stock market has a ripple effect on other markets as well. 

For example, if the DJIA (US Index) or Asian markets crash on a particular day, most likely Indian markets open lower as well. 

You can refer to this link for the market dashboard or this link to keep track of world indices

5 Step Process to Select Stocks for Intraday Trading 

#1. Shortlist 10-15 stocks

There are a number of ways that you can use to shortlist stocks for intraday trading.

Shortlist stocks with a ‘Fundamental Catalyst’

Stocks that have a fundamental catalyst i.e. some news or announcement, generally turn out to be the trending stocks for the day. 

So, it is best to trade a ‘trending’ stock with a favorable trade set up. You can easily find a list of trending stocks from websites/apps like Moneycontrol or ET. They publish a list of such stocks every morning before market hours. 

Refer the following links for stocks with fundamental catalysts.

  1. Economic times market news
  1. Moneycontrol market news 

Use a Screener 

Use the Ticker tape stock screeners available on the internet to filter stocks.

To shortlist stocks you need some of the filter criteria as under.

Volume change – Stocks that have a sudden spike in daily movement indicate that there is heightened interest in the stock which can provide trading opportunities.

Sector – There will be times when there could be major news favoring a particular sector. In such instances, you can screen stocks from the sector and keep it in your watchlist. 

For example, the COVID pandemic caused the pharma sector to rally. So you can select pharma stocks that can provide a lot of trading opportunities.

Technical indicators – You can filter stock based on the technical trading strategy that you want to use. For example, many people rely on the RSI indicator to identify stocks that are overbought/oversold. This screener can be handy to filter such stocks.

Make a Watchlist in Excel

Create a watchlist in Excel after shortlisting the stocks. Also, do a preliminary reading of the price chart and note down your observations. 

Your watchlist should look something like the one shown below –

#2. Observe Price Action

The first 30 minutes after the market opening is very volatile. The market may move in very unexpected ways during this time so it’s best to steer clear from taking a position at this time. 

Spend time observing the price action on the chart. A price action analysis is the absolute must-have skill that you need to have to be able to trade effectively. 

#3. Make Your Movement Prediction 

Based on your analysis of shortlisted stocks, try to predict the movement of the stock. Your prediction should be based on an informed analysis of factors like stock news/announcements, the study of price charts and technical indicators.

Remember that positive or negative news about a particular stock will not necessarily have the expected effect on the stock price. Thus, you need to look at all factors together to make a prediction.

#4. How to Finalise Stock to Entry 

The most ‘favorable trade setup’ would be a stock which is showing a clear trend i.e. either it is clearly going up or going down. 

A rule of thumb for intraday day trading is that never trade against the trend. For instance, if a stock has gone up 10% in a day, do not try to short the stock thinking that it will correct since it has already gone up so much. 

Once you have identified a stock showing a clear trend, plan your trade. Use your price action analysis skills to identify an appropriate entry point for the stock. 

Timing is very important to make a profit in the trade. Do not blindly enter into a trade. 

#5. Exit Strategy

Your target profit will depend on the type of trading strategy that you are using. You should clearly define what-if scenarios in your trade plan i.e. when to enter the trade when to book a profit, whether to re-enter a trade after booking profit, where to place a stop loss and so on. 

Try making a habit of writing down each one of your planned trades on paper. Execute your trade as mechanically as possible i.e. keeping your emotions out of it completely and with patience. 

A lot of good trades end up in loss because the trader is not patient enough or he exits the trade too early due to fear of loss. So, it is important to keep your emotions out of the way for the successful execution of trades. 

Final Words

Those were the 5 step processes that will help you to select the right stock for your intraday trading needs. 

Trading is a skilled profession that requires the right stock selection, patience, discipline, and well-defined rules that you must follow to be a successful trader. 

Otherwise, opt for value investing (different from trading) if you are interested in growing your money gradually over time with fewer efforts.

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