Intraday trading is one of the best trading options for short-term investors that open and close the trading position within the same day. In other words, those who get in and out of the stock market in 24 hours are called intraday traders.
While this can be a lucrative opportunity for those who are getting started with stock investments, intraday trading works for only those who manage to select the right type of stocks. In this post, we will discuss a few tips for choosing the best stocks for intraday trading. Let’s take a look:
- Choose Only Liquid Stocks
Liquid stocks refer to stocks that have a significant volume of trading. You can buy and sell these stocks in large quantities. For intraday traders, stocks with high liquidity make the best choice. You need to consider the liquidity of the stocks at different price levels before making an investment.
There are stocks that offer a very high level of liquidity at a low price, but the volume of these stocks falls once they get to a specific price level. The general rule is that you should buy stocks with high liquidity for a successful investment.
- Avoid Stocks with High Volatility Levels
Many factors affect the price movement of stocks. The trading volume, political factors, and current news around the company are a few crucial factors that might have a significant role in influencing the prices of the stocks. For example, the latest announcement can result in unpredictable movements in the stock prices.
It is better for investors to avoid such stocks, as their volatile nature can affect the prices and your investment significantly. Besides that, these stocks have a low trading volume that makes them illiquid. With that being said, a little volatility is also important for stock trading, as it indicates the active stocks and liquidity.
- Follow the Current Stock Market Trend
The reason why research is important for intraday trading is that it has a big impact on your returns. You must research the current trends and follow them when making investment decisions. If the market is bullish, opt for stocks that are likely to rise in value. In the bearish market, find the stocks whose value might decline. Following the trend in the stock market is all about identifying the stock market condition and price movements. The main goal is to avoid challenging the stock market and rather go with the flow.
- Identify Strong and Weak Stocks
Once you have selected the liquid stocks, the next step is to narrow down your options to the strong stocks. Strong stocks are likely to move in the direction of the stock market, which means the rise in the stock market will result in an increase in the value of the stock. For instance, if the market grows by 10%, the stocks will increase by 20-30 percent. Weak stocks do not move in the direction of the stock market.
- Do Your Homework
You can’t be a successful investor if you are desperate about trading. It’s important to do your homework and research the market conditions well before making any decision. Create a list of stocks, the current position of the company, the goals of the organization, and liquidity.
Making profits from the investment within a few hours from small fluctuations in the rates is not a cakewalk. You need to do your research, understand the market, and learn more about intraday trading before getting started with stock investment. There are hundreds of stocks available in the market, but there is no way you can conduct research on each stock or keep tabs on them all, which is why you should shortlist the stocks of a few companies and research them thoroughly.