Tips to choose the stocks for intraday trading

6 min read • Published 22 January 2023
Written by Darshan Maheshwari

When you take part in intraday trading, the lion’s share of your success will depend on choosing the right stocks. This is because intraday trades require you to take advantage of price movements and square off your position within a single trading day. So, stocks that may work for other investment strategies, may not work in this regard. 

Thus, if you are interested in intraday trading, you need to know the tips to select the appropriate stocks. Keep reading to know more.     

Tips to select  stocks for intraday trading

  1. Pick stocks with high liquidity

Liquidity is an essential aspect that you must keep in mind while choosing stocks for intraday trading. This will ensure that you can square off your position with ease before trading ends for the day. 

An effective way to check for a stock’s liquidity is to assess its trading volume. Securities which have a high trading volume indicate that a large number of investors are buying and selling that asset, thus ensuring high liquidity. 

  1. Determine the stock momentum

Stock momentum plays an important role in intraday trading. It is the speed at which stocks can change its value over a period of time and can help you profit from the trend in their market price. 

Experts suggest that you use momentum stocks, i.e., assets which change their price based on the momentum strength, while intraday trading. Doing so will help you understand when to take long or short positions in order to make profitable trades.   

  1. Assess the market and sector trends

It is a standard practice to analyse the prevailing market scenario while choosing a stock for trading. Several factors like demand and supply, geopolitical events, the company’s financial performance, and other micro and macroeconomic factors can affect the entire market. 

When you keep a tab on these trends, it becomes easier for you to move with the market and increase your chances of capitalising on profits. 

Additionally, it is advisable that you keep an eye on the performance of all the market sectors. This will help you identify stocks that are ready to break out of their range and take advantage of the situation. 

Apart from this, if you miss the opportunity to reap profits from the performance of a certain company, you can look at the peer stocks in its sector to secure chances of realising gains.

  1. Pick stocks that correlate with the market

There are several stocks that have a strong correlation with a specific benchmark or sector of the stock market. Investing in such securities can be highly beneficial for intraday trading. 

This is because analysing the sector or market trend will give you a clear idea of the ongoing market trend, thereby making it easier for you to make profitable investment choices.   

  1. Avoid choosing stocks that are too volatile

Volatility plays an important role in intraday trading. It is this factor that causes the price fluctuations on which intraday traders rely. But, choosing stocks with high volatility can cause steep price rises and falls that can be detrimental to your investment goals. 

In general, traders prefer to purchase stocks that show 3-5% price movements on either side. 

  1. Analyse using intraday trading indicators

Experts recommend taking the help of intraday trading indicators to conduct technical analysis. They include predicting factors like price, volume, moving averages, etc. and help you predict future patterns. In this regard, you can use financial metrics, oscillators, indicators, charts and graphs, etc. 

If you use these metrics, you can determine the moment to enter or exit a position, thereby making profitable trades.  

  1. Purchase stocks that are sensitive to news

Another excellent way to successful intraday trading is to purchase stocks that are sensitive to news. Any positive or negative news in the media can trigger significant price movements and you can plan your positions accordingly. 

However, there can also be instances of a price reversal in this regard. Therefore, while using this tactic, experts always suggest using a stop-loss order. 

  1. Opt for stocks that are used in derivatives contracts

You can also consider choosing stocks that are generally used by individuals for derivatives trading. According to market experts, these stocks show moderate levels of volatility and have high liquidity. These characteristics are very beneficial to intraday traders and thus are suitable in this regard. 

Furthermore, stocks of companies that are used in derivatives trading tend to be more transparent. Thus, finding information on them is a lot easier.  

Final Words

These were some of the tactics you can use to choose the appropriate stocks for intraday trading. However, before trading, please remember that intraday trading can be very risky due to the high levels of volatility involved. So, it is crucial that you assess your investment objectives and risk appetite before taking any decision. 

Frequently Asked Questions

What is the best time of the day for intraday trading?

For intraday trading beginners, the best time is from 10.15 A.M. to 2.30 P.M. The reason is, by 10.15 A.M., the morning stock volatility subsides, making it suitable for intraday traders to place their orders. 

How do I choose a good broker for intraday trading?

To choose a good brokerage firm for intraday trading, find out their service charges, percentage of intraday margin, research reports and whether they square off their clients’ positions in case they forget.

How long can I intraday trade on a particular day?

You can take part in intraday trading as long as the stock market is open i.e., from 09.15 A.M. to 3.30 P.M. However, practically, you cannot do intraday trading till the last moment of the closing bell. 

Are profits from intraday trading taxable?

Yes, according to the Income Tax Department, profits from intraday trading fall under speculative business income. So, they are taxable as per your applicable income tax slab. 

Was this helpful?

Darshan Maheshwari

Credit Associate
Darshan is an up-and-coming Investment analyst making headway in the field of capital markets. He has completed his Chartered Accountancy and CFA Level 1 exam. He is currently working as a Credit Associate at Wint Wealth.

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