Trading the stock market successfully needs a high level of discipline, firm strategy, and trading skills.
Choosing the right stocks to trade is essential; it is necessary for disciplined trading. In addition, the stocks chosen might determine the strategy to use or help decide whether it is suitable for intraday trading.
Intraday trading is a form of market speculation in which a trader buys and sells securities or financial instruments within the same day. Day traders open and close positions within a day.
In succeeding in intraday trading, stock traders will not have to trade all stocks available.
Attempting to trade all stocks will lead to losses. Instead, day traders can use some criteria to select the best stocks for day trading.
The requirements include stock liquidity, stock volatility, following a well-defined trend, defining entry and exit strategies, choosing correlated stocks, choosing stocks that react to news and other fundamental factors, and many more.
Trade Liquid Stocks
A stock that is liquid has high trading volumes. Therefore, traders could buy larger quantities of stocks from a liquid stock market without affecting the price of the stocks. This makes the earning potential in such markets more than a less liquid market such as the followings:
- IDBI Bank
- Union Bank India
- Indian Railway Finance Corporation Ltd.
Medium-to-High Volatility Stocks
When the price of a stock does not move during the day, you will have a hard time trading such stocks. Intraday trading success depends on price movement, and a trader will do himself well to choose only stocks that move almost every day or are expected to move.
Selecting stocks based on their volatility could be done by considering the percentage movement or the value of the stocks. When you do that, you will be left with some stocks, and you could choose one that fits other conditions more. Experts suggest selecting stocks that have at least 3% movement almost every day.
Following the Trend
Following the trend during intraday trading is very beneficial. Identifying the wave of a stock market trend and riding on such waves is a common way to make money during intraday trading. When the market is rising (during a bull run), selecting stocks that present the opportunities to take a buy position will be beneficial.
In contrast to this, a trader takes stocks that have selling opportunities in a falling market. Intraday traders should avoid challenging markets as much as possible.
Entry and Exit Strategies
You might pick stocks that work well for intraday trading but might not be able to make money from such stocks due to your trading strategy. There are many intraday trading strategies, but sticking to your own gives you a chance to succeed more in trading. When you are to pick a stock, make sure it fulfills your trade entry conditions and know the possible exit point.
Choose Correlated Stocks
This is also a reliable strategy to employ in choosing stocks to trade for intraday. All you are to do is to choose stocks that highly correlate to a sector or an index. The performance of the sector or index can give a clear indication of what will happen to a stock that is correlated to it.
For example, one can check the performance of stock from the NYSE website and choose a stock that is showing a clear uptrend or downtrend. Since the stock price correlates with the sectors, it is easy to trade with the trend of the market.
Aside from doing technical analysis to understand the chart patterns, the news also determines the stock market. Therefore, an intraday trader should choose a stock that is sensitive to news releases; that is, it has new flows. With stocks that react to the news, it is easy to buy on expectations and sell on announcements.
Choosing the right stocks is one of the critical and fundamental disciplines of intraday trading.
The key is to select a limited number of stocks under some defined principles so that it can be easy to follow the movements of the stock well.