How to Select Stocks for Intraday Trading

How To Select Stocks For Intraday Trading

To choose stocks for intraday trading, focus on high liquidity and volatility, select stocks that align with current market trends, set price targets and stop-loss orders, monitor news and market events, use technical analysis tools, and maintain a disciplined approach to risk management. Read the article to know more
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  • 19 Feb 2023
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To succeed as an intraday trader, you need to identify the right stocks to trade in. Once you have identified a selection of stocks and ETFs, you can then monitor and analyse these further to identify trends. The entry and exit strategies are dictated by the trends you observe.

There are a number of factors to consider when selecting stocks for intraday trading. Here are 8 rules that traders should follow.

1. Choose liquid stocks

Liquid stocks are those that are actively traded and have a high volume of shares being bought and sold. This means that you will be able to easily enter and exit your positions without affecting the price of the stock.

2. Avoid volatile stocks

Volatile stocks are those that are subject to sudden and large price movements. This can make it difficult to trade intraday, as you may not be able to predict their next move.

3. Invest in correlated stocks

Correlated stocks are those that tend to move in the same direction. This means that if you buy one stock, you can expect the other stock to move in the same direction, which can help you reduce your risk.

4. Follow market trends

Intraday traders should trade in the direction of the overall market trend. This means that if the market is trending upwards, you should buy stocks, and if the market is trending downwards, you should sell stocks.

5. Opt for brokers that offer charting tools

Charting tools can help you analyse the price movements of stocks and identify potential trading opportunities.

6. Look for transparent companies

Transparent companies are those that disclose their financial information regularly. This makes it easier for you to assess the risk of investing in their stock.

7. Choose stocks with a presence in the derivatives segment.

Stocks that are also traded in the derivatives market are more liquid and have higher trading volumes. This makes them more suitable for intraday trading.

8. Trade news-sensitive stocks.

News-sensitive stocks are those that are likely to be affected by news events. This can create trading opportunities, but it is important to be careful as these stocks can be more volatile.

The sustainability of narrow tick spreads in the stock market is based on several factors and can vary over time and across different stocks. Tick spread refers to the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a particular stock. A narrow tick spread signifies a smaller difference between these prices, which can benefit traders and investors. Highly liquid stocks tend to have narrower tick spreads. Liquidity is driven by the number of market participants and trading volume.

Stocks with high liquidity often have tight spreads because there are more buyers and sellers competing, reducing the spread.The price of a stock can influence its tick spread. Generally, higher-priced stocks tend to have narrower spreads because the price difference between the bid and ask is a smaller percentage of the stock's value.

Narrow tick spreads themselves do not directly impact the clarity or decipherability of chart patterns. Chart patterns, such as triangles, head and shoulders, flags, and double tops or bottoms, are formed based on price movements over time and are primarily a function of price action, volume, and investor sentiment. These patterns can occur in stocks with both narrow and wide tick spreads.

Stocks with narrow tick spreads tend to be more liquid, meaning they have higher trading volumes and more market participants. This liquidity can result in smoother price movements and more accurate chart patterns. In contrast, stocks with wider tick spreads may have fewer participants and less trading activity, potentially leading to choppier and less reliable chart patterns.

Price sensitivity to news flows, often referred to as news sensitivity, describes how quickly and significantly the price of a financial asset, such as a stock, responds to new information or news releases. It quantifies the extent to which market participants incorporate fresh information into asset prices, reflecting the efficiency of the market in processing news. In highly efficient markets, asset prices tend to be more sensitive to news, as traders and investors quickly incorporate new information into their decisions. In less efficient markets, price adjustments may be slower and less pronounced.

The type of news or information can impact sensitivity. Market-moving news, such as earnings reports, economic indicators, or significant geopolitical events, often leads to more pronounced price reactions compared to less impactful news. The composition of market participants matters. Institutional investors and algorithmic trading systems may react more swiftly to news than individual retail investors, potentially leading to rapid price adjustments. Liquidity in the market plays a role.


Selecting intraday trading stocks is a complex process that involves assessing liquidity, volatility, technical analysis, risk management, and continuous learning. Successful intraday trading relies on a well-thought-out strategy and the ability to adapt to dynamic market conditions. While there are no guarantees in trading, adhering to these principles can significantly improve a trader's chances of achieving success in the fast-paced world of intraday trading.

Traders should continuously practise and refine their skills. A trading journal can help track and analyse past trades, allowing traders to identify strengths and weaknesses in their strategies. Additionally, traders must remain disciplined, stick to their trading plans, and avoid emotional decision-making.

FAQs on Stock Selection for Intraday

Before taking a position, the intraday trader must assess whether the stock is liquid enough. If the stock is not traded in large volumes, squaring off the trade by market close could be tough. This issue may arise in case of small-cap and micro-cap stocks, for example. In contrast, large-caps and upper-range mid-caps tend to be sufficiently liquid for intraday trades. Such stocks generally attract enough buyers and sellers through market hours. But a stock’s liquidity may vary from one day to another. That’s why it helps to put a number on it. Here is a formula to calculate the liquidity of a stock: Liquidity = Average daily volumes traded / Market capitalisation A common guideline is not to trade stocks with a liquidity ratio of less than 10%.

When large buy or sell orders are placed on certain stocks, there is a big effect on the stock price. Such stocks are said to have a high impact cost. Notably, this is a feature of stocks that are less liquid. Day traders should either avoid such stocks altogether or trade them only in small quantities. Otherwise, exiting the position could prove challenging.

Intraday traders benefit by trading stocks which are widely owned. That’s because such stocks are less prone to volatility. Suppose, however, that a stock is owned by a small group of market participants. These shareholders might have significant control over how the stock moves. Their actions may result in high volatility. If prices fluctuate too much, the stocks might even hit the upper or lower circuit filters. The circuit filters are triggered by highly volatile stocks when they hit the upper or lower price limit. Trading is then suspended until things cool down. In such a situation, day traders might be unable to exit their positions on time. That could lead to losses.

Being able to read technical charts is an essential skill for intraday traders. You should also be well-versed with trading indicators that highlight volume, trends, and volatility in the markets. This will help you to assess if a stock is showing clear patterns. Study how the stock has moved historically to find if the same pattern has occurred earlier. With this information in hand, you can trade based on how the stock is likely to move.

A stock that is sensitive to the news can offer good day trading opportunities. When a stock reacts easily, the news flow may offer hints about how the stock price could move. You can then place your buy and sell orders accordingly.

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