Many traders wonder what is the difference between how to pick stocks for intraday and how to select stocks for long-term investment.
It is crucial to do real-time market analysis while choosing stocks for intraday trading in India. Traders need to understand how the price moves, why it moves, and what other traders do to make wise selections.
As a trader, you can consider the below points when choosing stocks to trade intraday.
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Liquidity
When selecting intraday trading stocks, liquidity is a crucial factor to consider. If a stock has high liquidity, It means that it has a higher volume, which means more people are trading that stock. If more people are trading a stock it means, the buy and sell orders can be executed swiftly as well.
This prevents issues with finding a buyer or seller when the time comes to square off the day’s position. Liquid stocks often have high trading volumes that allow day traders to buy and sell without dramatic changes in prices.
Stocks’ trading volume, market depth, and bid and offer prices can be used to determine their liquidity.
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Volatility
Volatility is another key aspect that a trader needs to consider while choosing stocks for intraday trading.
However, the relationship an investor may have with a volatile stock is not the same as that of a day trader. Day traders usually appreciate volatility to a certain extent. This allows them the necessary price movements to cash in from. If the prices stay stable throughout the day, an intraday trader will not be able to make profits from the price movements. Thus, volatility is important for intraday traders, however, it is a two-edged sword and can cause severe losses as well, if not handled appropriately.
However, extremely volatile stocks can be avoided.
While trading in volatile stocks, using a stop-loss order is usually recommended. If the stock prices move against you, your stop-loss order can prevent you from significant losses by squaring off the open positions.
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Market Trends
Staying on top of recent trends is significant for intraday traders. They can make the best of their trades by keeping themselves updated with all the recent happenings and developments in the market. If there is a certain kind of sentiment prevailing in the market, it is wise for intraday traders to devise their day trading strategy based on these factors. This allows them to capitalize on the trend. On other hand, going against the trend can sometimes cost the traders in terms of exaggerated losses.
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Sector Trends
The markets can be further segmented into various industries, such as banking, FMCG, technology, automotive, pharmaceuticals, oil & gas, etc. Day traders need to stay updated with the developments in these sectors to make the most of their intraday trades.
If traders can identify early trends in these sectors, it will allow them to take positions accordingly and capitalize on such trends. For example, the rise of the EV sector is an example in the recent past.
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Momentum of Stocks
Stock momentum is a term used to describe how quickly a stock’s price changes over time. Traders may use this to gauge how strongly the stock price is moving in a certain direction.
Momentum stocks are those whose prices rapidly move in a certain direction based on the event or trend. Day traders look to utilise the opportunity presented by these stocks on either side of price movement.
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Technical Analysis
Traders can also conduct technical analysis of stocks to identify buy and sell signals. They can use technical indicators such as MACD (Moving average convergence/divergence), Moving Averages, RSI (Relative strength index), Bollinger Bands, etc., to identify price movements.
They can also utilise indicators to show which stocks are breaking their support and resistance levels and accordingly take their day trading positions.