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Select the Right Stock for Intraday Trading

Select the Right Stock for Intraday Trading

To qualify for intraday trading, there are a variety of conditions that your stock must fulfil. When you select stocks, you need to ensure that these conditions are met. Remember, you cannot have too many stocks in your bucket list because you need to closely track these stocks. While there are no numbers, a list of 8-10 stocks would suffice. The stock selection has to be made on a mix of quantitative and qualitative factors. Intraday trading is a high risk game and you have just five hours to close your trade. Hence, your stocks selection needs to be near perfect.

Quantitative Factors that go into Stock Selection

  • Intraday trading must be restricted to liquid stocks only. You can measure liquidity by the ratio of average daily volumes to market capitalization. The moral of the story is that you should be able to execute trades without moving the prices. Also your trade should not get executed 3 or 4 price ticks away, which could change the economics of your intraday trade. That is what focus on liquidity is all about.
  • Have you seen stocks that are extremely volatile. It could be due to a variety of reasons. They could be in volatile sectors or they could be owned by a handful of shareholders. Either ways, such stocks are best avoided because stop losses could get easily triggered in such volatile stocks.
  • This is a slightly complicated matter. Select at least 5 out of 10 stocks that have good correlation with each other. The advantage of this approach is that once you have identified one stock, you can replicate that trade in multiple stocks. High correlation stocks tend to move in tandem and so you are saving yourself a lot of effort in intraday trading.
  • Study the past pattern of the stock and try to gauge what the stock price and volumes are trying to tell you. If you have formed an opinion on the stock and if the price is giving a different trend, then you must believe the market trend. It has something to say!
  • Pick stocks that shows clear patterns on the chart and which is tracked by analysts. Why does tracking by analysts matter. You get a picture of how many upgrades versus downgrades the stock has. That gives you a better base to judge the margin of safety in a stock and you can tweak your intraday trading strategy accordingly.

Some Qualitative Factors to Consider for Intraday Stock Selection

Stock selection for intraday must not be based only on quantitative factors but also on qualitative factors. Here are 3 such factors you must consider.

  • Select companies that have stable managements have a history of keeping their promises. Such stocks are more predictable. When you trade intraday based on momentum, the last thing you require are sudden surprises arising from issues pertaining to management quality. Focus on the quality of management when you select stocks for intraday.
  • This is something slightly different from management quality and refers to the standards of corporate governance followed by the company. Companies that are more transparent and work in the interest of stakeholders, are more reliable and predictable.
  • Companies with strong brands are natural suited to intraday trading. The brand creates the beta for the stock and it ensures that trends sustain for a longer period of time. We have seen that in strong brands in the consumer segment giving you ample opportunities to identify and capitalize on intraday trading opportunities.


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