How to Select Stocks for Intraday Trading?

Intraday trading is extremely short-term trading, also known as day trading. It involves investors buying and selling stocks, currencies, securities, and bonds within the same day, specifically between 9:15 AM and 3:30 PM. The primary goal is to book a profit, but traders may end up with either a profit or a loss due to market fluctuation.  

Intraday trading carries a high level of risk and requires an experienced trader who understands the market’s dynamics and can act promptly to changes.

In this type of trading, traders either buy the stock and sell for a profit or loss, or they sell stock and then buy it back for a profit or a loss. Typically, professional traders and the banking system engaged in intraday trading.

However, with the advancements in technology and the introduction of online trading platforms, intraday trading has become accessible to individuals. The potential for high returns attracts many investors to intraday trading. However, these high returns come with high risks, which are significantly influenced by the choice of stocks. 

In this blog, we’ll learn how to select stocks for intraday trading that benefit you. 

8 Ways to select stocks for intraday trading? 

Here are 8 ways to select stocks for intraday trading. 

1. Consider the Liquidity of the Security

Considering the liquidity of stocks is crucial. Liquidity refers to how quickly you can buy and sell the stocks without incurring significant costs. Stocks with high liquidity are easy and quick to trade. 

For example, if you've bought equity worth Rs. 100 and sold it quickly for Rs 100, it indicates that the market for this particular stock is liquid. Conversely, if you can't sell the stock, it means the stock is illiquid. However, these are the ideal situations that don't exist. Stocks vary in their liquidity, and you must select those with high liquidity for your intraday trading.

How to check the liquidity of stocks?

The assessment of a stock’s liquidity is quantitative rather than qualitative. You can examine various aspects of the stocks to understand their liquidity. 

1. Trading volume 

Stocks with high trading volume are the most liquid. These stocks see a lot of buying and selling activity. Generally, large and mid-cap stocks have high trading volume and are more suitable for intraday trading. 

2. Bid-ask Spread

The bid-ask spread significantly influences the liquidity of a stock. It represents the difference between the highest price buyers are willing to pay (bid) and the lowest price at which sellers are willing to sell (ask). 

3. Current ratio 

The current ratio provides a quantitative value to measure a stock’s liquidity. It compares the company's current liquid assets to its current liabilities. You can calculate it using the formula.

Current ratio = Current liquid assets/Current liabilities. 

2. Inspecting a Stock's Volatility and Assessing Your Capacity to Bear Risk

Volatile stocks are those subject to sudden and significant price movements due to market fluctuations. A stock with a high volatility rate carries both higher risk and potential for profit. It is essential to consider your risk-bearing capacity when trading such stocks. Generally, it's recommended to avoid stocks with high volatility. 

How to learn about a stock’s volatility

• Look at the historical volatility of the stock, which can be found in the candlestick chart while placing an order.
• Use the standard deviation to find the mean. Then, consider the average extent to which the stock price has deviated. 
• Inspect the maximum drawdown of the stock. This will also help you understand the potential loss estimation.

3. Check real-time insights with your Online trading app

To select stocks for intraday trading, it is essential to check real-time insights. For this purpose, choosing a good online trading platform is crucial. An online trading platform helps you quickly analyse the market trends. 

There are multiple online trading platforms available. When choosing an app, consider its features, your investment goals, the app’s user interface, and insights tools. You can compare different apps, try them out and pick the one that suits your trading requirements. Some online trading platforms also offer suggestions for the best stocks for your intraday. With the help of an app, gain insights for intraday stocks. 

4. Keep an Eye on Market trends 

In Intraday trading, it is essential to understand the direction in which the market is moving. During an uptrend, focus on stocks that are performing well; in a downtrend, look for stocks that are declining in price. Market trends change over time. It is important to stay attentive and active. 

In an upward trend, take profit when the market rises slightly above the current price. In a video trend, take profit when the market falls slightly below the current price.

5. Trade with News-Sensitive Stocks

Current events significantly influence the stock market. It’s important to follow business news and current affairs that could affect the market, such as government policies and elections. Understanding tthe potential positive and negative impact on the stocks is crucial. Selecting stocks that are sensitive to news for trading can offer immediate profits. Make sure to avoid stocks that are facing significant negative publicity. 

6. Pick Stocks of Transparent Company 

If you're a beginner intraday trader, select stocks from transparent companies. Transparent companies regularly update their financial information, allowing you to make decisions based on data. Additionally, this transparency mitigates risk. As several traders like you trust in these companies, it leads to increased trading volume. 

7. Opt for Correlated Stocks 

Opting for Correlated stocks can be a great strategy. It allows you to reduce the risks associated with intraday trading. The correlation between stocks means that when one security moves up or down, the other security moves in the same direction. You'll need to understand the concepts of positive and negative stock correlation. 

8. Choose Stocks Present in the Derivatives Segment 

The derivative segment is another aspect of the stock market that enables investors to buy and sell assets at a fixed and predetermined future date. For Intraday trading, consider the stocks available for Future and Options trading. Stocks listed in the derivatives market have high trading volume and are more liquid. 

You can incorporate these aspects when selecting stocks for intraday trading and make an informed decision. 

How to Select Stocks for Intraday Trading One Day Before 

You can consider the historical performance of the stock, insights from today's market, and the liquidity of the stocks. Additionally, conduct a thorough analysis to identify stocks suitable for intraday trading for tomorrow. 

You can also pay attention to specific events, festivals, and scheduled announcements that may influence the stock market. Determine how these events will impact the stocks. For example, if a well-known company, “X”, is set to launch a highly advanced product tomorrow, the surrounding hype allows you to predict its stock performance and consider it for your intraday trading. 

Tips for Selecting Stocks for Intraday Trading: 

• Consider only the top 100 Nifty Stocks for intraday trading. 
• Prefer stocks priced at Rs 1,000 and above
• Remain calm and observe the market carefully while selecting stocks. 
• Make quick decisions after considering all the facts and risks. 
• Check trend indicators such as moving averages, super trends etc. 
• Select stock according to your risk-tolerance. 

Conclusion 

Intraday trading is risky yet offers a great way to earn high returns. Choosing the right stock is essential for gaining profit through intraday trading. Understanding the market, analysing it, and maintaining attentiveness are crucial for intraday trading success. Choose an online trading platform that operates smoothly and is effectively for one-day trading. 

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