12 Rules for Picking Stocks in Intraday Trading
In intraday trading, traders buy and sell shares on the same day while identifying patterns for small price movements to make a profit and emphasizing the importance of choosing the right stocks. After opening a trading account, traders will find that systems play an important role when they start to trade intraday. A well-structured approach may help traders appropriately select stocks for intraday trading. Below are 12 useful rules.
1. Pick Liquid Stocks
Liquidity is the stock's ability to be bought and sold quickly in the market without affecting its price. Traders usually tend to choose stocks for intraday trading based on high trading volumes. High liquidity allows traders to execute hefty orders with no pronounced price changes, making entering and exiting easy.
2. Select Stocks with Moderate Volatility
Volatility indicates how much the price of a stock varies during the shortest possible period given for intraday trading. Traders must see some price fluctuation for intraday trading to be profitable. However, prices with drastic unpredictability tend to yield unpredictable results. Stocks usually gain for intraday tactics if they display consistent movement over a certain bandwidth.
3. Identify Stocks that Follow Market Trend
Stocks that trend along with the market can help provide intraday traders with opportunities. For instance, during a bull market, traders look for stocks trending higher, which supports the basis of executing a certain trade direction.
4. Technical Indicators
Technical indicators—Moving Averages, RSI, MACD, and Bollinger Bands—can give traders clues to price patterns and momentum. Intraday traders frequently use these instruments to decide on entry and exit points.
5. Identify Sector Participation
Sector momentum can dictate the actions of individual stocks. Stocks within a sector that receive institutional attention or positive news will probably have pronounced trends. Intraday traders actively look at sector indices to narrow down stocks currently attracting attention.
6. Monitor News and Events
Announcements made by companies, results reporting, changes in policy, or global developments can shift the price of a stock. Intraday traders generally focus on real-time news feeds, given stocks that can react sharply to popular developments. Timing is key for news trading, particularly since the market can respond almost immediately.
7. Examine Historical Price Action
The historical price action of a stock can give traders clues about its potential reactions under varying market conditions. Traders may want to look at historical intraday charts for reference to support and resistance levels, as well as where volume "spikes" were usually present.
8. Avoid Penny Stocks
Traders usually avoid this class of stocks, which typically has low liquidity and is therefore subject to manipulation; these features may not be great for intraday trading. Traders generally prefer to stay away from very low-priced stocks or those with less meaningful trading histories.
9. Screen Stocks
Screening stocks helps traders filter them based on custom parameters, such as volume, price change, market capitalization, and technical indicators. Most platforms that allow opening trading accounts also feature built-in screening tools to assist traders in stock selection.
10. Support Trade with an Effective System
When traders pick an intraday stock, they generally determine beforehand what strategy they will implement, whether it be momentum trading, scalp trading, breakout trading, or range-bound trading. The types of stocks needed may differ across these strategies. For example, momentum trading would naturally encompass stocks that have been moving recently and have seen volume enhancement.
11. Set Entry and Exit Levels in Advance
When traders make decisions based on preestablished levels, they greatly reduce the emotionality of their thoughts during trading. Intraday traders often use chart patterns and indicators to determine those levels. Setting a stop-loss is another classic application that limits a foreseen loss should the market move against their position.
12. Back-Test and Review Trades
After hours, traders review all trades they took to assess whether the stock acted as expected by the price behavior and whether their strategy was effective. Traders may also back-test their rules over historical data in an effort to find what needs changing within their selection criteria.
Conclusion
In summary, intraday trading requires discipline, planning, and a systematic way of selecting stocks. By sticking to these 12 rules for selecting stocks for intraday trading and using tools already available once they create a trading account, traders establish a framework for informed decision-making.