What is Intraday Trading?
Intraday trading refers to the practice of buying and selling stocks within the same trading day. The primary objective of intraday trading is to capitalize on small price movements in the market, with all positions being squared off before the market closes. Unlike long-term investing, where the focus is on the fundamental growth of a company, intraday trading relies heavily on market trends, technical analysis, and quick decision-making. Traders use various strategies such as momentum trading, scalping, and breakout trading to profit from these short-term price fluctuations. The key difference between intraday trading and regular trading lies in the holding period; in intraday trading, no stocks are held overnight.
“Intraday trading” describes the buying and selling of a security within a single day (i.e., before the market closes). This type of trading is done by traders interested in making smaller and quicker profits.
Intraday traders do not have long-term goals for their investments; instead, they are looking for short-term gains during the same trading day.
Intraday traders minimise the risk of impact from overnight events. This trading method aims to take positions for shorter time intervals and book smaller profits during market hours. Intraday traders sometimes aim to take more than one trade on the same day.
8 Rules for Selecting Stocks for Intraday Trading
Trading is all about buying and selling shares on the same day with an aim to book profits. However, to succeed as an intraday trader, you need to have extensive market knowledge so that you can select the suitable stocks which will generate profit for you.
Let’s take a look at the eight rules for the selection of stocks that will make you a successful intraday trader.
- Choose Liquid stocks.
- Look for volatile stocks.
- Invest in correlated stocks.
- Follow market trends.
- Use different strategies that can help you conduct technical analysis of stocks for the identification of buy or sell signals.
- Go for stocks of companies that have sufficient news about their business operations in the market.
- Follow the performance of various sectors in the market and invest accordingly.
- Select stocks that have a presence in the derivative segment.
3 Factors To Consider While Selecting Stocks For Intraday Trading
1. Liquidity
- Why It Matters: Liquidity refers to how easily a stock can be bought or sold in the market without affecting its price. Highly liquid stocks allow traders to enter and exit positions quickly, which is essential in intraday trading where timing is everything.
- How to Identify: Look for stocks with high trading volumes. Stocks of large-cap companies or those in popular sectors typically exhibit higher liquidity. Liquidity ensures that there is enough market activity to support quick trades, reducing the risk of slippage.
2. Volatility
- Why It Matters: Volatility measures the price fluctuations of a stock within a specific period. High volatility indicates that the stock price is likely to experience significant changes during the trading day, presenting more opportunities for profit.
- How to Identify: Consider stocks that have a history of frequent price movements or are currently experiencing volatility due to market news, earnings announcements, or sectoral changes. However, be cautious with extreme volatility as it can also increase the risk of substantial losses.
3. Market Trends and News
- Why It Matters: Stock prices can be significantly influenced by market trends, news, and events. Positive news can lead to a rise in stock prices, while negative news can cause a decline. Staying informed about the latest developments can help in making informed trading decisions.
Conclusion
To succeed in intraday trading, picking the appropriate intraday trading stocks is crucial; as a result, make technical analysis your companion. Moreover, by following the above tips, you will have a clear understanding of selecting the right stocks for day trading. Finally, to avoid emotional bias, ensure your judgments are data-driven.