How to Select Stocks for Intraday Trading
In this article, I will discuss Stock Selection for Intraday Trading, i.e., How to Select Stocks for Intraday Trading, in detail. Please read our previous article, where we discussed how to make your own day trading scanner step by step. As part of this article, we will discuss the following pointers in detail related to stock selection for intraday.
- Rules for Stock Selection
- 3 Stock Selection Methods
- With Live Example
Why do most traders fail to pick the right stock?
- They pick randomly on tips from social media or news
- They don’t prepare before the market open
Rules for Stock Selection in Intraday Trading
Price Structure = Trend (avoid ranging market)
Trade active stock=high volume and high open interest build up (smart money active on these stocks)
The momentum of the stock = Strength & Continuity of the move (previous day candle)
Stock Selection for Intraday Trading Types
- Breakout trading
- Momentum trading
- Pullback reversal trading
How do select stocks for intraday trading?
Generally, three methods of stock selection for intraday trading
- Aftermarket closed
- Live market stock selection
- News or result-based stock selection
Aftermarket closed stock selection
- Based on the end of the day (EOD) data
- Based on breakout
Based on EOD data
Here, we have to select stocks based on
- High volume
- High Open interest
- Top gainer and top looser
Step to find high volume, high open interest, or top gainer/loser stock
Step 1: We have to find a stock that shows an increase in open interest with increasing volume at the end of the day (EOD). Suppose we find some 10 stocks with both bullish and bearish data from our scanner
Step 2: then we check where the action is happening in the chart
Step 3: If price action indicates bullish or bearish behaviors, we keep it on our watch list. If the index and sector indicate positive. we prefer only bullish stock
Step 4: aftermarket open if our system tells us to buy, then we will go long in that stock
Let’s do this with an example
Based on breakout
Time frame hourly or daily
The breakout means a price breakout from any
- Support or resistance
- Trend line
- Chart pattern
This method takes time. As we have to find out manually in our chart
Chart Patterns like
- Cup & Handle
- Tight trading range
Live market Stock Selection For Intraday Trading
There are two methods to select stocks from the live market
- Pre-market stock selection for intraday trading
- After 15 of the market open
Premarket Stock Selection For Intraday Trading
- First, select FO stock
- Check market sentiment(Check advance-decline ratio )
- Generally, I trade only gap-up or gap-down stock from pre-market stock selection
- Pick a stock and check-in chart
Let’s do it with an example
Live Market Stock Selection
After 15 market opens, find
Step 1: Find the Top gainer /looser from the NSE site
Step 2: Check the premarket volume
Step 3: See the last 2/3 days’ activity and draw the support and resistance line.
Step 4: Wait for the pullback to entry(pullback entry strategy)
News-based/result-based (no technical analysis work)
We get the news from the MONEY CONTROL APP
- WHAT CHANGES WHILE YOU ARE SLEEPING
- STOCK IN NEWS
How to Select Stocks for Intraday Trading?
Selecting stocks for intraday trading involves a combination of qualitative and quantitative analysis. The goal is to identify stocks likely to exhibit significant price movement during trading. Here are some factors and methods traders commonly use for selection:
- Liquidity: Intraday trading requires highly liquid stocks. Liquid stocks have large volumes, allowing traders to enter and exit positions without significantly affecting the stock’s price.
- Volatility: Volatile Stocks have greater ranges in their trading prices and, hence, offer more profit opportunities. However, this also increases risk, so traders should adjust their strategies accordingly.
- Correlation to Market Indices: Some traders prefer stocks that strongly correlate with broader market indices, as they can be more predictable and often move with the market sentiment.
- News and Events: Stocks often move on to news and corporate events. Earnings reports, product launches, regulatory changes, and economic data releases can all cause significant price movements.
- Sector Performance: Observing the performance of different sectors can be a good starting point, as sectors often move together. A stock in a strong sector may present good intraday trading opportunities.
- Technical Analysis: Many intraday traders use technical analysis to find stocks with specific chart patterns or technical indicators that signal potential short-term price movements.
- Historical Performance: Past performance can provide insights into how stocks may behave under certain market conditions. Stocks with a history of intraday volatility may likely show similar behavior.
- Pre-market and After-hours Trading Activity: The pre-market and after-hours trading sessions can explain how a stock might perform during regular trading hours.
- Stock Screeners: Traders can use specific filters (like price, volume, and volatility) to identify potential stocks for intraday trading.
- Social Media and Forums: Buzz on social media and trading forums can highlight stocks that may have high intraday trading interest.
Selecting Stocks: A Step-by-Step Approach:
Step 1: Screening: Use a stock screener to filter stocks based on liquidity (volume), price volatility (historical and implied), and price range.
Step 2: Research: Look for news releases scheduled for the day. Check if any major economic events or reports are due that could affect the market.
Step 3: Technical Analysis: Apply technical analysis to the filtered stocks to identify those with strong trends or patterns. Look for stocks at or near support/resistance levels or those exhibiting breakout patterns.
Step 4: Watch List: Create a stock list that passes your screening and analysis. Prioritize the list based on potential trade opportunities and ease of entry/exit.
Step 5: Set Alerts: Set price alerts on your selected stocks to notify when a movement could present a trading opportunity.
Step 6: Risk Assessment: Before entering any trade, determine the risk-reward ratio. Establish your entry and exit points, as well as stop-loss orders.
Step 7: Market Sentiment: Gauge overall market sentiment to ensure your trades align with broader market movements.
Step 8: Continuous Monitoring: Intraday trading requires constant monitoring of selected stocks and the overall market to adjust your strategies as necessary.
- Start Early: Being prepared before the market opens can give you an advantage.
- Stay Informed: Keep up-to-date with the latest news, as it can affect stock prices drastically.
- Be Disciplined: Follow your trading plan, and do not let emotions drive your decisions.
- Manage Capital: Do not risk more than a small percentage of your trading capital on any single trade.
Remember that intraday trading carries risks, and having a clear strategy and strict money management rules is crucial. It’s also worth noting that while these tips can be useful, no strategy can guarantee success in the stock market, and it’s important to conduct thorough research and consider personal risk tolerance.
In this article, I explain How to Select Stocks for Intraday Trading with examples. I hope you enjoy this Stock Selection for Intraday Trading article. Please join my Telegram Channel, YouTube Channel, and Facebook Group to learn more and clear your doubts.
About the Author: Pranaya Rout
Pranaya Rout has published more than 3,000 articles in his 11-year career. Pranaya Rout has very good experience with Microsoft Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core, ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing, Microservices, Design Patterns and still learning new technologies.