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Chapter 9.3:How to choose stocks for intraday trading

- Liquid stocks improve the probability of quick trade execution

- Filter stocks based on percentage, rupee value movements

- Look for stocks that group market trends, indicators closely

- Classify stocks as strong, weak as per correlation with market

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 analyze these further to identify trends.The entry and exit strategies are dictated by the trends you observe.

First, though, let’s look at the first step of the process—identifying stocks to trade as a day trader-

Liquid stocks:

Liquid stocks are those that have a large volume trading through the day. The single most important criteria 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 depend 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 specialize in contrarian plays, most traders prefer and recommend trading in 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.

What next?

There are some more information and suggestions that can help you pick the right intraday trading stocks. Click here to read those . Or simply open a Free Intraday Trading (FIT) account with Kotak Securities today and start trading now!

Read to understand why you should also invest in equity

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