Intraday Stock Tips: How to Select Stocks for Intraday?

Intraday trading refers to purchasing and selling stocks on the same trading day without taking delivery. Traders settle all positions before the market closes and record gains or losses depending on intraday price changes.  

Knowing how to choose stocks for intraday trading is important since not all publicly traded companies have enough movement or liquidity for same-day trades. Volume, volatility, correlation, trend, and stock behaviour are all factors that assist traders in discovering   intraday possibilities. 

Key Takeaways

Also Read: How to Choose Best Demat Account?

Tips to Select Stocks for Intraday Trading 

Avoid Highly Volatile Stocks: 

It is commonly noticed that a low daily volume of traded stocks or those where some huge news is expected to move in an unpredictable way. Sometimes, the stock may show volatility even after the announcement of the big news. Traders are recommended to avoid intraday trading in such stocks. A few volatile stocks are in the mid-size segment while most stocks traded in the low-cap categories like S, T, and Z are highly chaotic. In addition to being volatile, these stocks have low daily volumes, making them illiquid. 

It’s also important to remember that a certain degree of volatility indicates an active market and intraday traders can profit by successfully betting in these stocks. Although there is no rule, most intraday traders acknowledge shares with 3-5 per cent of price movement on either side as the best intraday stocks. 

Trade in Good Correlation Stocks: 

An intraday tip for choosing the right stock is to opt for those that have a higher correlation with major sectors and indices. This means when the index or the sector sees an upward movement, the stock price also increases. Stocks that move according to the sentiment of the group are reliable and often follow the expected movement of the sector. For example, strengthening of the Indian Rupee against the Dollar will generally affect all information technology companies dependent on the US markets. A stronger rupee implies lower earnings for the IT companies and weakening rupee will result in higher export incomes for these companies. 

Follow the Trend:

One of the most important intraday trading tips is to remember that moving with the trend is always beneficial. During a bull run in the stock market, traders must try to identify stocks that can potentially arise. On the other hand, during the bear run, finding stocks that are likely to decline is advisable. 

Pick After Research:

Quality research plays an important role in intraday trading because traders want stocks to move reliably during market hours. A popular strategy is to monitor the overall index, identify active sectors, and select liquid stocks within those sectors. Technical indicators such as support and resistance levels, chart patterns, and historical volume data may all assist you determine whether an intraday trade is suitable. Profits or losses emerge from little price swings during trading hours, thus speed and precision are critical. Short selling is also only permitted intraday in rolling settlement systems.   

Is the Stock Liquid Enough? 

Liquidity is a key aspect when evaluating companies for intraday trading since traders must initiate and exit positions on the same day. Smaller companies frequently experience poor liquidity, but many F&O and bigger mid-cap stocks have more liquidity. One method for determining liquidity is to compare average daily traded volume to market capitalisation. While there are no hard and fast rules, a minimum liquidity ratio of 10% should be the benchmark to consider a stock for intraday trading. 

Impact cost is another indicator linked to liquidity. It shows how much the stock price changes when a significant buy or sell order is made. A larger impact cost suggests that order execution may occur at unfavourable pricing during big transactions. Stocks with lower impact costs often have better order matching and less price gaps, which can aid intraday execution. Both liquidity and impact cost contribute to determining whether a stock is appropriate for same-day trading situations. 

Is the Stock Widely Owned? 

You can check out these details in the ownership pattern of the stock which is available on the websites of the exchange. You can also get cues from the trading pattern of the stock. Stocks that are not widely owned will be more volatile and will also hit circuit filters easily. That is because a handful of market operators will be able to corner these stocks quite easily if they are not widely owned. As an intraday trader, always prefer stocks that are liquid and widely owned. That will reduce your risk substantially. 

Does the Stock Sustain Narrow Tick Spreads? 

This is again an extension of the liquidity and the impact cost argument. But since we are talking about an intraday trader, the tick becomes very important. The tick is the minimum gap between the two orders. There must be enough volumes on each tick to qualify for an intraday trade. You do not want to place an order and realise that your order execution has actually happened several ticks away. In intraday trades, you try to capitalise on trends, and so you normally place market orders. Hence, the tick gap becomes a key consideration for intraday stock selection. The smaller the tick gap, the better it is for you. 

Does it Show Clear and Decipherable Chart Patterns? 

As an intraday trader, you need to rely heavily on technical charts. Of course, you must develop the capacity to read charts on your own. But above all, ensure that the stock depicts clear chart patterns. It is not possible to trade in a stock that does not have sufficient history or which does not depict a clear pattern. Only with a long history can you decipher patterns and then trade for a repeat of these patterns. 

What is the Price Sensitivity to News Flows? 

An intraday trader, typically, relies on two factors to trade, viz., chart patterns and sensitivity to news flows. You cannot trade intraday in a stock that does not react to the news. Basically, you are looking at stocks that are extremely sensitive to news. That is why your strategy of buying on expectations and selling on announcements can actually work in practice. 

Intraday trading is as much about getting the stock list right as it is about discipline. The key here is to keep your stock universe limited so that you can do justice to tracking these stocks in terms of fundamentals, technicals and news flows.  
One of the big questions that comes to every intraday trader’s mind every single day is to find the right stock for intraday trading. After all, the key to successful trading is the right selection of stocks. There are a number of factors that should be taken into consideration at the time of stock selection. There are so many listed shares, but it isn’t necessary that they can be chosen for intraday trading. Take a look at a few tips mentioned below 

How to Pick Best Stocks for Intraday Trading?

Shares Volume 

One of the main criteria for intraday trading is the volume of the stocks. The total number of shares that are traded in a particular market at a given time reflects volume. It is mostly recommended to purchase stocks that are high in volume. 

Stocks of the Day 

Depending on the good news, a few stocks are expected to perform well. Such stocks are anticipated to move in either direction with good volume. These shares can be used for intraday trading. 

Week’s Movement 

Study the movement of stocks that are constantly closing in negative or positive territory for the previous week. An analysis of this movement will help you in selecting the stocks for intraday trading. 

Resistance Level 

Some of the stocks to watch out for are those that have broken resistance levels and are moving in an upward direction. Such stocks are one of the favourite choices. 

Trading in Few Stocklists

A few intraday traders are involved in trading only in particular shares. This is because these traders engage in a detailed study of share movement. This is one of the main intraday strategies that are followed by traders. 

Top Gainers and Losers  

While some shares come under top gainers, others come under top losers.  Such shares may provide fairly good movements. However, keep a close watch on these them in order to begin trading. 

Conclusion 

Successful intraday traders have trained their eyes and senses so they can invariably pick the best shares for intraday. Choosing the right stocks is important to make a profit in intraday trading; hence, you must make technical analysis your ally. With time, you will discover the right way to select the best intraday stocks.  Ensure that you make data-driven decisions and keep your emotional bias away.