Adjust your accessibility
How to Select Stocks for Intraday Trading

How To Select Intraday Trading Stocks

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
  •  2m
  • 0
  • 19 Feb 2023
Read Full Article >

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. Let’s look at the first step of the process on how to choose stocks for intraday trading:

Liquid Stocks:

Liquid stocks are those which have a large volume trading through the day. The single most important criterion when choosing to trade intraday is to find stocks that are liquid. This is important for two reasons:

  1. You can buy and sell large volumes without impacting the trend you want to benefit from.
  2. The trades you line up have the potential to be executed quickly. As intraday trading depends on precise timing, avoiding any delay in execution is paramount to success.

Medium-to-High Volatility:

Intraday success depends on daily price movements. If you end up trading stocks that have a sticky price, you will not find an opportunity to trade them profitably. Therefore, you have to select stocks that experience a price movement almost every day. You can filter the stocks based on movements either in percentage terms or the Rupee value of the stock. This filtration can typically give you different sets of stocks. As a rule of thumb, experts suggest choosing stocks that move at least 3% per day on an average. Other experts prefer stocks that move by at least Rs.150 on an average day. Go to the technical analysis page here to find out more about volatility.

Follows Indicators:

To succeed as an intraday trader, you must be able to correctly predict the price movement in the short term. To improve chances of success, you can choose stocks that follow the group trends and indicators closely. For example, if you want to trade stocks from the IT sector, choose those that show a strong correlation with the INR vs. US$ movement. For more such intraday trading indicators, click here.

Trade With The Trend:

While some traders specialise in contrarian plays, most traders prefer and recommend trading intraday with the trend. Meaning, an intraday trader has to identify the waves of a stock market trend and then try to ride on these waves. This can be possible by conducting intraday trading time analysis. For example, if you see that the market is rising, you can try to select stocks that offer opportunities to take long (buy) positions. In contrast, in a falling market, traders can try to spot and take short positions where possible. The bottom line is to avoid challenging the market.

Strong Stocks Vs. Weak Stocks:

Once experts identify liquid stocks that move with the trend, they then divide them into relatively strong stocks and weak stocks. Strong stocks are ones that move in the same direction as the market, but more intensely. For example, if the market rises by, say, 1%, then a strong stock tends to rise higher—say 2-3%. Weak stocks, in contrast, tend to rise/fall at a slower pace than the market. Experts usually prefer strong stocks in an uptrend and weak stocks in a downtrend to lower the potential for loss. But remember, it’s better to avoid trading when there’s a weak or no trend in the market. After all, stock markets are not always trending. Sometimes they stall as well. When that happens, consider being patient and waiting for markets to trend again.

Tips For Picking The Right Stocks

  • Volume Traded: Look at the total number of shares being traded within a particular time frame. This will tell you about the volumes being bought and sold. Intraday traders should pick stocks that trade in high volumes. Trending stock: Is there buzz around a particular stock? Such stocks could offer lucrative opportunities to day traders. They are likely to show momentum in one or the other direction, along with good trading volumes.

  • Recent Analysis: Look at how stocks on your shortlist have performed over the last week or two. Has the closing price been consistently positive or negative over the period? Assess the likely movement for the day before placing a buy or sell order.

  • Breakout Stocks: Keep an eye on the resistance and support levels of your chosen stocks. The resistance level is the price beyond which a stock is not expected to rise. Meanwhile, the support level is the price beyond which a stock is unlikely to fall. Does a stock show signs of breaking out of these levels? Capitalise on the breakout to book quick profits.

  • Gainers And Losers: Most brokers will highlight the top gainers and losers of the day. Track the movements of these stocks closely as you decide on your intraday positions.

  • Monitor Select Stocks: Thousands of stocks are traded on the stock exchange. Day traders cannot possibly keep tabs on them all. That is why most traders focus their attention on a few shortlisted stocks. By researching these stocks thoroughly, the trader can grab profitable opportunities as they arise.

Stock Selection FAQs

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.

Join 3.8m+ customers and enjoy premium benefits
+91 -