How to pick a stock in intraday trading

 

Intraday trading can be a lucrative option if you want to make quick money. This form of online share trading involves starting and ending your trades on the same day.

Say, you buy 1,000 shares of Company X in the morning at the rate of Rs 1,100 per share. The price appreciates and you sell the lot by evening at the rate of Rs 1,112 per share. You then book a profit of Rs 12,000 (1,000×12). Your position or stock balance remains zero at the end of the day. It is also possible to sell a stock in the morning and buy it back before the close of the day, if you feel the price is going to go down.

Generating profits by riding small price fluctuations during the few hours of a trading day is tricky. So, the biggest challenge in intraday trading for beginners is picking the correct stock. Here are a few tips to help you pick the right stock for intraday trading.

1.   Go for liquid stocks

Intraday trading should be restricted to liquid stocks only. Liquid stocks are traded in bulk and they can be bought and sold without affecting the price much. When stocks are less liquid, the demand for them is low. So, if you enter a position involving an illiquid stock, you might find it hard to exit the position within market hours.

2.   Avoid volatile stocks

Be careful of stocks which show extreme price volatility. The volatility can be due to many reasons. It could be because they are in volatile sectors. Or, perhaps, very few shareholders buy them, which makes them volatile. Volatile shares also have low daily trade volumes and are thus not very liquid. New traders are advised to stay away.

3.   Look for good correlation

Choose stocks which have a high correlation with their sector or index group. These shares tend to move directly proportional to the movement of their sector or index. For example, if the sector sees price appreciation, the prices of these shares also increase. This is easy to track since it accompanies the sentiments of the entire group. For example, the tightening of import rules in the United States (US) will affect all information technology (IT) companies in India.

4.   Go with the flow

Moving with the market trend is beneficial for newbies. Like in all share trades, you need to first identify whether the markets are in a bullish or bearish phase. Look out for stocks that will appreciate when the market is bullish. Similarly, highlight stocks that might plummet during a bearish phase. Like in any field, market research is crucial while trying to figure out what to invest in. Form an idea and then match it with the market trend to identify the best course of action.

5.   Do your research

Never forget to do a thorough study and market research. The share market is a place for taking risk. The good players, however, take only calculated risks. To accomplish this, start by identifying the sectors that are of interest. Then, list out the stocks which are lucrative in those sectors.

6.   Choose stable and transparent companies

Study the history and stability of the organisation. Examine their growth rates, revenue sources, and earnings reports, among other things. Also, check if they are transparent about their management and operations. It helps to look for strong brand value as well. Strong brands are more stable and hence more attractive for intraday trading. The brand ensures that the trends remain for a longer period.

7.   A word of caution

If you are new to intraday trading, stay focussed on your plan of action. Reckless and disorganised traders cannot survive in the stock market. Open an account with a large broker like Kotak Securities to benefit from their portfolio-tracking tools and real-time access to market data. Devote time and effort to improve your stock selection, and you should soon start generating profits.