Intraday trading, or day trading, is all about buying and selling stocks on the same trading day. Like other trading types, the goal of intraday trading is to make a profit. Since the stock market is highly volatile and prices fluctuate throughout the day, intraday traders profit from the price fluctuation by buying and selling stocks on the same day before the market closes.
In intraday stock trading, success greatly depends on choosing the right stock. And since there are only a few hours in a day, you have limited time before squaring off your position. If you are searching for the best way to select stocks for intraday trading, you are in the right place. In this article, we will help you hone your stocking selection strategy.
But before talking about the steps to follow, please remember that every investor has their profile and objectives. So, use this article as a guide to developing your strategies further. Also, when choosing a stock, consider your risk appetite, and ensure to conduct necessary diligence.
Why is it Important to Select the Right Stock?
There are tens of hundreds of thousands of stocks in the market, and only a few stocks are worth buying. Making the wrong choice in this aspect can deeply affect your performance. Below are the reasons why it is vital to trade with the right stock as an intraday trader:
Increase Success Rate
When you invest in the right stock, your chances of profit from it are significantly increased. If you want to profit from any trade, it is essential to spend a few minutes understanding the trade.
If you are new to trading, it is understandable that you want to hurry things up and make money. But intraday trading does not work that way. Entering a trade without fully understanding what it is all about sets you up for failure.
You should treat trading like a business if you genuinely want to make money and not as a hobby, even if you love trading. Learn everything you can about every trade before investing your money in it.
Keep you Focused
When you know what you are searching for in a stock trade, it helps you stay focused. No matter your trading profile, staying focused is the key to performing at an optimal level. But many newbies underestimate the power that staying focused has on trading performance.
On the surface, trading seems to deal only with charts and numbers, but things can get very confusing in real-time. Sometimes traders may find the perfect stock to trade on but later find another stock with more potential than the first stock. And after a couple of minutes of looking through the stocks, everything may look blurry and confusing. And in the end, this can
cause many traders to make errors when selecting stocks trade. But on the contrary, when you have a strategy for selling stocks for intraday trading, you wouldn’t lose focus like other traders who don’t have a trading plan.
The Result – More Money
It is essential to find the right stock because it helps you earn more money along the line. With the right stock, traders can stay in a trade and make money in no time. And the best part about trading the right stock is that traders can easily predict the stock’s performance.
Many traders don’t make a lot of money trading because they are afraid to buy a stock. But knowing the right stock to buy is the perfect recipe for buying high and selling low. When you know the direction the market will move, you can easily know when to buy and when to sell the stock. You end up earning a lot of money before you know it.
What Parameters to Look for When we Select Stocks for intraday?
When searching for the best stock to trade, it is essential to use trading indicators. Pairing this with the right risk management tool will help you gain more insight into the price trends.
Here are the six best trading indicators to look out for
News
News can significantly impact the volatility of stocks, so it is essential to stay ahead of the trend at all times. As a trader, you ought to familiarize yourself with key events on the news. By staying up to date on the news, you will know when to leave or enter a trade.
Unexpected events can have a significant turn on the chart. However, it all depends on the type of news; some news affects a lot, while some news affects nothing. There are some websites you can use with news and calendars that show you the impact of the news on the market.
For example, rumors of war, political influences, natural disasters, transfer of company ownership, and so on can influence stock prices.
Liquidity
Market liquidity also significantly impacts everything from trade execution to big-offer spread. Hence, it is essential to understand what the terms mean and which market is liquid, and one that is illiquid before entering it.
It is essential to trade on a stock with a high level of liquidity. Liquidity determines how quickly you need to hold or sell an asset, while illiquidity is the opposite. Also, when there is both high supply and demand for any asset, liquidity increases.
Market liquidity also impacts how quickly you can close and open positions. Additionally, when a stock is highly liquid, there is less risk associated with it as there is always someone willing to buy the stock from you at a given position.
Price
If you buy any stock, its current price should influence your buying decision. As a good trader, observing the chart is one way to know when the price is right to buy the stock. Traders often buy the dip of stock and sell when the price increases. If you buy a stock after the price has increased, you may lose your money or not make as much profit as you would have if you bought the dip. Remember, the marketplace determines stock prices.
So, to be the best trader, you need to understand what drives the stock market and what factors affect a stock’s price. While there is no one formula you can use to determine the forces that move the price of stocks up, understanding the technical factors, fundamental factors, and stock market sentiments will help you avoid buying the wrong stock.
Social media
Like the news impacts the stock market, social media has as much power to influence the price of stocks. With the rapid growth of social networks, investors are now paying more attention to social media platforms.
Social media platforms have become an effective channel where many investors gain insights into financial market trends and interact with others. Social media contains extensive open-source information that drives investors’ behavior. It influences investors’ behaviors because it can influence stock volatility.
From interacting to communicating information with social media on investors’ opinions of the stock market, investors can scan other investors’ opinions and transactions before making investment decisions. As such, investors are susceptible to sentiments and can dominate investment decisions, affecting the stock market as a whole.
So, when you are searching for the right stock to trade, social media can be a tool to scrutinize the market before you enter.
Mark Changes at Pre-Market from Yesterday’s Close
After the intraday trading market closes each day, that shouldn’t be the last time you look at the trade. Instead, it would help if you take note of changes such as the market closing price and the next day’s opening price and trading price. This phenomenon is also known as the gap size, which is the area in the price chart that depicts no trade.
When researching the gap size, you should take note of the gap up or positive gap and the gap down or negative gap. A positive gap is when the stock opens the next day above the previous day’s high and trades the whole day at a level above it. Similarly, a negative gap is when the stock opens the next day below the previous day’s low and trades the whole day at a level below it. As a trader, to ease the analysis and trading, you also need to know the difference between common, measuring, breakaway, and exhaustion.
Stock Screeners
As a trader, stock screeners are another parameter/tool you can use to know when a trade is right. It helps you separate stocks based on your defined metrics. There are many stock screeners you can use; some are free, while some are paid for. When you are using a stock screener, it lets you choose a suitable trading instrument for any given criteria or profile.
For example, with stock screeners, traders can use filter stocks based on the P/E ratio, market capitalization, price, dividend ratio, etc. Also, stock screeners let traders analyze several stocks over a short period. This helps you identify and eliminate stocks that are not meeting your standards. Summarily, stock screeners help traders know when to enter and exit trades
in their trading strategies.
Steps to Finding the Best Day Stock Trades
Each second in the stock market opens the opportunity to trade. Yet, not every second provides a high possibility of a trade. Think of it this way— in a sea of nearly infinite possibilities, each trade you enter needs to align with your trading plan or offer good profit potential for the risk you’re taking. As a day trader looking for the best day stocks, follow the steps below:
Commit Some Regular Time
Apart from deciding on your risk appetite, it would help if you also put in some time to find the right stock. Rather than focusing on quantitative research, focus on doing qualitative research.
One quality stock is better than a hundred bad stocks. You can make a considerable profit with one quality stock, while you can lose all your money on one trade with an insufficient stock. Although as a day trader, you have minimal time to research the market.
So, while performing your research, you need to be as precise as possible and quick at the same time. Narrow your research quickly with financial reports such as revenue, net income, EPS, P/E, ROA/ROE, etc.
Choose a Favorite Stock Screener
As a newbie trader, you may have been told to leave stock picking for professionals, perhaps because professionals have the deep bench of analysts and resources to help them find the best stock and sort through mountains of data. While it is probably good advice, you can also find quality stock like a professional with a quality stock screener.
The highly sophisticated tool enables you to sift through thousands of stocks or tens of thousands in seconds. The more you work on a stock screener, the better you become at narrowing down your choice of investment opportunities. So, it is good advice to invest in a quality stock screener that fits your investment portfolio.
Practice Timing Entries & Exits
The trick to making the most of any stock trading is entering and exiting the market at the right time. When you buy and hold the right stock for an ideal amount of time and also exit at the right time, you will potentially make a profit.
Traders who are terrible timers are the ones that suffer the most loss at the end of the trading day. You should not disregard market conditions and use the same strategy to enter and exit a market. Watch the gap and make sure the time is right before entering the market. A great time to sell or buy a position in the market is during the quiet time when many traders are not
online. There are several other strategies you can use to determine the right time to enter and exit the market. The trick is to know what best suits your investment plan.
Set Realistic Expectations
It is essential that you have realistic expectations at the end of the day. Many people are intrigued by the idea of making millions in minutes. While trading offers many opportunities, reaching your ambition may take longer than initially planned.
If you give yourself an insane goal to achieve from trading, it may push you to trade on risky stocks you wouldn’t trade on a norm. And the bitter truth about stock trading is that you will lose some money and make some money.
When your goals are realistic, it is easier for you as a trader to know when something is not working. Unrealistic expectations may lead to committing mistakes that a trader with realistic expectations wouldn’t.
Strategy to Use to Select Stocks for Intraday
Apart from following the steps above, you need to have a strategy to select the right stocks. The stocks you trade depend on several issues, such as your level of experience, how much capital you have available, and your trading style.
Whether you are trying to find the best stock for day trading or other types of trading, you should write down the criteria for picking stocks as part of your trading plan. Your trading plan is dynamic and will evolve as you continue to learn, develop skills and identify your weaknesses and strengths. Below are three strategies to adopt before you pick stocks:
Monitor Your Trading Performance
Trading performance evaluates how a trader is doing with their trades. As a trader, monitoring your trading performance is a great way to know if a stock you are trading is ideal for you.
An easy way to measure performance may be a simple return on capital calculation. For example, if you deposit $1000 and achieve a profit of $400 during a specific period, your return would be 40%.
However, focusing only on your results and ignoring other factors is not the best approach. There are many ways to measure trading performance, such as absolute drawdown, relative drawdown, profit trader, Sharpe ratio, measuring pips or points, etc.
Trade Strong Stocks in an Uptrend
Uptrend is a term used to describe the movement of the price of financial assets in an upward direction. In other words, uptrends are composed of higher swing highs and higher swing lows. So, the uptrend is considered intact if the price reaches the higher swing highs and higher swing lows.
To spot an uptrend, look for higher lows and higher highs. Although trading strong stocks in an uptrend is quicker to buy in on dips. An excellent way to know a strong stock in an uptrend is when the price reaches lows but cannot break through.
Trade Weak Stocks in a Downtrend
Being able to spot a downtrend is a great way to save money. A downtrend is a term used to describe the movement of the price of financial assets in a downward direction. In other words, downtrends are composed of lower highs and lower lows.
The best way to trade a downtrend is to take a bearish position at the peak of a correction. You can then enter the position when a new lower high is set. If you are going to trade a downtrend, note to trade weak stocks as they yield the most profit when using this strategy.
Select Stocks for Intraday – Summary
In conclusion, stock investors and day traders need access to complex data analysis to sift through thousands of stocks. Remember that as a day trader, you only have a little time to find the perfect stock to trade that day.
If you don’t know what to do to get a quality stock to invest in, you will get confused and might end up trading a low-quality stock. To make life easier, consider getting a high-quality stock screener.
You also need to have a trading strategy and know the best time to enter and exit a trade. With the right stock and the perfect timing in place, you are all set to get the most from day trading.
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