How to pick stocks for intra-day trading?

While some people choose to buy a position and hold it, called long-term investing, others tend to trade their stocks daily and square off their positions every few days. This is known as short-term trading.

May 27, 2018 07:05 IST India Infoline News Service

With their “high-risk high-reward” offer, the capital markets are an ever-generous source of money. Considering this, more and more people today have turned their gaze towards this avenue as far as investment is concerned.
 
While some people choose to buy a position and hold it, called long-term investing, others tend to trade their stocks daily and square off their positions every few days. This is known as short-term trading. However, if you, buy a stock today and sell it today itself, or in a day or two, it is known as intra-day trading or day trading.
 
Irrespective of the type of trading one wishes to indulge in, both intra-day and long-term trading methods have some prerequisites that need to be met in order to make successful profits.
 
This article intends to cover some fundamental tips and tricks to keep in mind in order to pick up good stocks for intra-day trading.
 
Conduct thorough and efficient research
 
Be it long-term or short-term investing, research is an integral part of trading in the stock markets. A thorough analysis of a company’s profile and financials will tell you whether the company is worth investing or not. Based on this research, prepare a sector-wise list of top stocks that you would want to invest in. These companies need not be market leaders, but they should certainly be liquid.
 
Moreover, applying fundamental and technical analysis tools to your research will help you identify a stock’s trend, its current standing, and the right entry and exit points. Research prepares you for unexpected volatilities and helps you devise your ideal trading strategies for different scenarios.
 
Check the stock’s liquidity
 
Liquid stocks allow for trading in huge volumes. This means that one can buy or sell larger quantities of the stock, without affecting its price significantly. Selling huge volumes of an illiquid or less liquid stock can be a problem if there aren’t enough buyers. If this happens, you could be stuck with a stock until you find buyers and the gains realized in this time might get erased. With stocks that allow larger volumes, getting in and out becomes easier.
 
Avoid volatile stocks
 
Many stocks tend to respond to news and other announcements in a big way even if the impact is not so significant. If caught unprepared, this might leave you on the losing end of the trading spectrum. Hence, stick to stocks with strong fundamentals that do not factor in such developments unless and until they are true and would create an impact.
 
Follow the intra-day trend
 
As intra-day trends do not usually last for more than two trades, focus on completing a trade before it (the trend) changes or reverses. Identify stocks that are climbing using trend lines to gain a better insight into their dynamics.
 
There are many parameters, other than the aforementioned ones, to consider before indulging in intra-day trading. Learn and study about chart lines and trend lines, as well as fundamental and technical tools, to analyze the current scenario in a stock.
 
If, after conducting your research and analysis, you do not feel that a stock will perform, do not invest in it even if the market seems to be doing so. After all, you need to trust yourself and your research if you plan to make a career out of trading. Remember, the market moves in waves, and a successful trader is one who learns to surf these waves with relative ease.

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