Day traders require price movement to make money. They attempt to secure profits from the price fluctuations in a given period. Therefore, day traders need to select stocks with ample liquidity. To trade the right stocks, intraday traders capitalize on the trend. However, intraday trends do not continue indefinitely, but day traders can place a few trades before a reversal/shift occurs.
It is harsh but true that there is nothing like a list of top stocks to watch out for intraday trading as it would be a dynamic list and subject to change constantly. Shortlisting and selection of intraday stocks for dynamic lists depend on a number of strategies and techniques.
It is challenging to scan and select a few stocks for the day. Here are the foremost parameters a day trader should consider to select stocks for intraday trading. Before parameters, let us define ‘what is a trading account.’
A trading account is the primary account of day traders. Every trade needs to be placed on stock exchanges online. For this, you require a trading account that connects a trader and stock exchanges. A trading account records the flow of your securities also. Your trading account links your bank savings account and demat account that makes the trading process seamless.
For intraday trading India, you can look for a broker offering hi-tech demat trading accounts.
Parameters to watch out for stocks for intraday trading
When you look at stocks for intraday trading, market liquidity is the first parameter to focus upon. The exit from a position must be easy. You may find an exit difficult, if you choose small cap stocks. For liquid stocks, you can check the F&O stocks and the indices stocks. The benchmark minimum liquidity volume can be 10%. Make sure this liquidity is sustainable.
2. Impact cost
Impact cost is a measure of market liquidity. You need to identify if the stock price will be impacted when you place a trade order. If the impact cost is high, intraday risk also becomes high. Better to pick stocks with low impact cost for intraday trading.
3. Chart patterns
Every intraday trader has to be a technical analyst also who understands decipherable patterns. With the experience in the market, most traders can develop the ability to read charts. It is really hard to trade a stock with insufficient history that can not depict a clear pattern. Using a long history, you can find repeating patterns.
4. Stocks sensitivity to news flows
Intraday traders can take advantage of stocks that react to news. Intraday traders strategies include placing buy orders on expectations and sell orders on announcements.
Here are a few technical aspects that a day trader should understand to watch out for stocks for intraday.
1. Sector Trends
As an intraday trader, it is necessary to be informed about the performance of all sectors in the economy. If you have identified the technology sector consolidating over months and is ready to break out, you can look at strong companies in the sector.
2. Price Based Determination
Stock price fluctuates daily several times. Among daily open prices, close price, high price, low price, high and low prices are relevant to pick stocks for trading. When prices go up 52 weeks high, there are chances of increased prices. When prices fall below 52 weeks low, there will probably be a decrease in the price. It will be helpful to decide whether to trade a particular stock or not.
3. Intraday Indicators
Day traders need to keep track of the market trend using intraday indicators. These indicators are essentially based on charts providing crucial information. Basically, indicators indicate the price movement i.e. where it will head next. Intraday indicators provide the following information:
- Trend: Trend indicators tend to move between high and low values and indicate the direction of the market in which it is moving.
- Momentum: Momentum indicators show the strength of the trend and indicate any possibility of reversal. For example, Moving Average, Relative Strength Index (RSI) that indicate the price top and bottom.
- Volume: Using volume indicators, you come to know how the volume changes with time. For example, the On-Balance Volume indicator. It will show you if the price changes, how strongly it will affect the volume.
- Volatility: Volatility indicators are important as they indicate how the price changes in a given period. High volatility means big price moves.
All these parameters and different charts based on patterns and indicators help day traders for market analysis and pick stocks for day trading.