How to Pick Stocks for Intraday Trading

Intraday trading appeals to several investors as it involves opening trades and closing them within the same trading session. The key to successful trading, here, lies in how to choose stocks for intraday trading and when to enter and exit positions, depending on the stocks selected. Once traders have determined the right stocks, they can move ahead and analyse them along with identifying stock trends. In intraday trading, entry and exit tactics are indicated by the trends the trader perceives. Nonetheless, there are some key considerations to factor while selecting intraday trading stocks. Exploring these will give investors insights into the activity of intraday trading.  

Key Points to Remember While Selecting Intraday Stocks 

How to choose stocks for intraday trading is dependent on several factors and rules that traders may follow as a rule of thumb. Here are some to consider:  

• Focus on Liquid Stocks 

Intraday traders tend to look for the most liquid stocks, those that are actively traded throughout the trading day. These are the stocks that trade in great volumes, reflecting the strong demand of buyers and sellers who constantly engage in trading. Such stocks allow traders to enter and exit positions easily and quickly, without any effect on the stock’s price.  

• Avoid High-Volatility Stocks 

Another way of knowing how to pick stocks for intraday trading is to avoid trading stocks that are volatile. These stocks exhibit unexpected and substantial movements in prices. Intraday trading with such stocks may pose a challenge as traders find it difficult to predict the stock’s behaviour.  

• Consider Investing in Correlated Stock

Stocks that move in similar directions are correlated stocks. These can be identified by traders who may invest in stocks moving in the same direction, reducing risk.  

• Use Tools like Charts 

Charts are useful tools in deciding how to select stocks for day trading. Charts and related tools aid traders in the assessment of stock price movements and the identification of prospective opportunities for intraday trading.  

• Follow Trends of the Market 

Any savvy trader knows that keeping an eye on market trends helps in trading activity in general. Market trends tell you about the momentum of the market and this aids you in making decisions to buy or sell stocks.  

• Seek Out Transparent Businesses  

Companies that disclose their financial and company records are transparent in their generation of information to investors. As a result, investors can make informed decisions on how to choose stocks for intraday trading by analysing company information relating to the potential of its stock. 

• Opt for Stocks in the Segment of Derivatives 

Stocks traded in the derivatives market segments tend to be inherently liquid as they have high trading volumes. These stocks may be potentially considered for intraday trading.  

• Select Stocks Sensitive to Market News 

Stocks that are sensitive to market news and whose movements are influenced by news may create potential trading opportunities for intraday traders. This could be one way of how to pick stocks for intraday trading. However, investors must be vigilant about these stocks as they may be volatile depending on the news they are affected by.  

Important Points to Consider While Selecting Stocks for Intraday Trading 

Investors may ask relevant questions while considering certain stocks to trade in while engaging in intraday trading. Here are some key questions to think of:  

• Does the stock have a narrow tick spread? 

The significance of narrow tick spreads related to the stock market depends on many factors and may change over time and across varied stocks. Essentially, tick spread is the difference between a buyer’s highest offered price (bid) and a seller’s lowest acceptance price (ask) for any given stock. When you speak of a narrow tick spread, this refers to a small difference between prices, and this tends to be beneficial to traders. Stocks that have high liquidity are characterised by narrow tick spreads. In knowing how to choose shares for intraday trading, traders may locate liquid stocks with narrow tick spreads, showing that a large number of buyers and sellers are competing for these particular stocks. Typically, stocks that are in the higher-price range have narrower spreads as the difference in price between bid and ask is a small proportion of the value of the stock.  

• Does it show clear and decipherable chart patterns?

Narrow tick spreads may be a potential way to determine what stocks to pick for intraday trading. However, they do not have a direct effect on the decipherability or clarity of patterns on a stock chart. Certain chart patterns like head and shoulders, triangles, double tops, bottoms, or flags are created based on the movements of price over a period and are mainly a function of investor sentiment, volume, and price action. Such patterns are likely to occur in stocks with wide tick spreads or narrow tick spreads. So, how to choose stocks for intraday trading must go a step further.  

Following from the above, the keyway to decipher stocks for intraday trading is to choose liquid stocks. Therefore, even if you try to gauge certain chart patterns, you should concentrate on the liquidity component of stocks. Charts tend to have accuracy while evaluating liquid stocks (narrow tick spreads) and tend to portray choppier patterns with less liquid stocks (wide tick spreads).  

• Is the price sensitive to news? 

“News sensitivity” of particular stocks can determine how to choose stocks for intraday trading. News sensitivity reflects the speed and the significance of how an asset like a stock responds to news releases or new information in the media. It quantifies the degree to which traders, investors, and other participants in financial markets imbibe new information into the prices of assets like stocks. In very efficient markets, news has more of an impact on prices as investors tend to build new information into decision-making. In less efficient markets, the adjustments to do with price may be slower.  

Besides the sensitivity to news and media releases, the kind of news has an impact on the markets, influencing prices to plummet or rise. Several factors in the news such as economic indicators, earnings reports, crucial geopolitical events, and other news-worthy circumstances can have more pronounced effects on markets than less significant news and information.  

In deciding how to pick stocks for intraday trading, algorithmic trading mechanisms and institutional investors play a role too. As far as their reactions to the news are concerned, these market participants may likely react to news more quickly than retail investors, swaying the market and prices in certain directions, and resulting in swift price adjustments.  

Conclusion 

How to choose stocks for intraday trading may seem less complicated than it is. However, in reality, this is a rigorous process that traders must undergo, and involves evaluating technical analysis, volatility, liquidity, and risk management, among other factors. Intraday traders are constant learners, always assessing strategies and finding new ways to make the most of day trading and price shifts in stocks. Furthermore, intraday traders have distinct abilities that make them cope with dynamic market conditions and risk, taking positions as they see fit with a distinct presence of mind to deal with continuous changes in the markets. Traders who refine their skills and learn from past mistakes could be potential intraday traders with abilities to select the right stock.