What kind of Stocks to Choose from for Intraday Trading?
For intraday trading, traders like to choose stocks that have enough liquidity. Liquidity allows an intraday trader to swiftly execute an order without affecting the market price of the asset. With intraday trading you are aware that the order needs to be squared off at the end of the market hours and if the stocks are not liquid enough then you may not find a seller, this can be an undesired result for you as an intraday trader, thus it is very important to trade on stocks that have high liquidity.
What is 'Value Area' and Why Does It Matter?
Among various strategies that traders deploy to analyse their trades, ‘value area’ is one of them. It is an area where 70% of the previous day’s trades occurred. Share prices hover throughout the day. You can plot the area on a chart where most of the volume was observed and highlight this section. The value area rule says there is an 80% chance of the share prices surging back to the value area if the prices have opened below the value area and stay there for the first hour. If the share prices open above the identified value area and persist below for the first hour of the day, they are expected to fall to the value area.This provides a very simple strategy for intraday traders. They can analyse the value area and take a position accordingly.
However, it is important to remember that there is a 20% chance of the stock prices not behaving in the desired way. To cover this aspect, intraday traders use a stop-loss order. This restricts losses in case the share prices are not moving the desired way.