Rules For Selecting Stock for Intraday Trading - NTA

Rules for selecting stock for Intraday Trading


There is a number of stocks are available to select for intraday trading. But as we all know that intraday trading is all about buying and selling or selling and buying of stock within a day. It may sound exciting but on the other hand, it can also be risky if you don’t manage your day trades. And to manage your risk in day trading, the first step is figuring out which is the best stock to trade. And to choose the perfect stock for the day trading, there are some rules for selecting stock for intraday trading, which is explained below.

Rules for selecting stocks for day trading

    • Liquidity is the important thing that must be kept in mind during the selection of the right stocks for intraday trading. Stock with liquidity has a huge volume whereby large quantities of stocks can be buying or sell without any significant price change. Traders can get more opportunities to catch big movements in the stock price within a day.
    • The other important rule for selecting the stock for intraday trading is to stay away from volatile stocks. When you go with the volatile stocks for day trading, there are high chances of the trigger of stop-loss.
    • Select the stocks that are highly correlated with major sectors and indexes. When the sectors and indexes are going in an upward direction, the price of stocks also increases. You can check the performance of different sectors from the NSE INDIA website at the beginning of the trading session. You can select the stock from the sector showing a major upward or downside movement. One of the benefits of selecting stock from sector is you can easily Trade with the trend of the market.
    • Moving with the trend of the market is always gives good results in intraday trading. i.e., when the market is in the Bullish Run, try to find out stocks that have the potential to arise. Same for the bearish market, identifying stocks that are likely to decline is suitable.
    • Quality Research is one of the rules that every trader should strictly follow. Traders use technical analysis for quality research. This helps traders to identify the major support and resistance levels for stocks. Traders can identify the different charting patterns and past performance of the stocks and choose the right stock.
    • Do intraday trading only in companies where there is enough information available easily to the public. It means that the companies with high transparency have a better chance to go into your stock selection list.
    • Choose companies that have a history of keeping their promises and have stable management. Pay attention to the quality of management when you select the stocks for day trading.
    • Focus on the stocks that are also there in the future and option. Because these types of stocks are extensively analyzed by the analyst and also you can get more information about such type of stocks.
    • Companies with strong brands are highly suitable for intraday trading. Because the brands create the beta for stocks and also it ensures that the trends can sustain for a longer period of time.
    • Based on the good news, few stocks have the potential to perform well. Look for stocks that are extremely sensitive to news. These types of stocks can be selected for intraday trading. But while you are going with the news based stock selection, you should follow the discipline. Some of the stocks with good news can react completely in the opposite direction. In this type of situation, you should use a strict stop loss. Also, this type of stocks can give high returns in just one day.
    • The volume of the stocks is one of the important criteria for intraday trading. Stock with high volumes gives a good price movement. While picking up the stock for day trading, you must check for the higher volume. Don’t trade the socks that have minimum volume.
  • The most important part for intraday trading is the selection of the right stock to trade. You can consider these factors when are selecting the stock for intraday trading.

Is the stock is liquid?

As explained above, that you always consider the most liquid stock for day trading.  You can simply measure the stock by this formula.

Liquidity = Average daily volume / Market capitalization.
If the liquidity ratio is minimum 10%, you can select the stock for day trading.

Does the stock show clear chart patterns?

As an intraday trader you must know the different charting patterns and how to find out important intraday levels from the chart. Do analysis every day and find out the different stocks with clear charting patterns.

Check the price sensitivity to news flows.

Most of day traders rely on two factors to trade: Different charting patterns and sensitivity to news flows. You can use the strategy of buying on expectations based on news and selling on announcements. This will work well only when the stocks are extremely sensitive to news.

Is the stock widely owned?

Check the details of ownership patterns of the stock which can be easily available on the website of stock market research.  Stocks that are not widely owned will become more volatile and can hit the circuit filters easily. As a day trader, always give preference to stocks which are widely owned and liquid. That will be helpful to reduce your risk substantially.

Follow the Discipline:

This is one of the important rules for the stock selection. Select the stock that matches all the criteria. Do your homework every day and choose stock as per your strategy only.  Many traders avoid doing their research after closing of the market and many of traders don’t focus on their strategy and do trade by picking up stocks randomly or by tips with big profits in mind.

Intraday trading is all about protecting your capital. Always trade with discipline and follow it for stock selection also. Don’t take decisions with emotions.

Also Read: 10 Ways to learn stock market trading