Intraday trading involves buying and selling the stocks on the same day. In other words, intraday trading is squaring off the transaction on the same day in the stock market. Thus, no overnight positions are carried in intraday trading. Intraday trading can help you make a fortune if you are disciplined and do it the right way. In this article, we will suggest you 6 factors that you must consider before selecting stocks for intraday trading in order to make good profits.
6 Factors to Consider for Selecting Stocks for Intraday Trading
As mentioned earlier, intraday trading is purchasing and selling the stock on the same day. This is possible only if there are sufficient buyers and sellers of the stock at a given price. Therefore, while doing an intraday trade, select stocks with higher volumes i.e. higher liquidity. By picking stocks with higher volumes you would find easy entry and exit points.
There are two types of stock: low impact cost stocks and high impact cost stocks. High impact cost means that the stock price would be affected severely if there is any large buy or sell order. This makes the intraday trading position risky. While low impact cost is one where there is the minimal impact of big orders on the stock price. Therefore, it is advisable to select low impact cost shares for intraday trade.
While picking up stocks for intraday trading, always check the holding of the stock. If the stock is widely owned, it would be less volatile and much safer to trade. On the other hand, you must avoid trading in stocks that are not widely owned because the operators are active in these stocks and make them very volatile. Therefore, to reduce your risk, you must trade in stocks that are widely owned.
Tick Spread is the price at which buyers and sellers are ready to trade their respective quantities. If there is a big gap between the buy price and the selling price then intraday trade can result in loss. Therefore, always pick stocks that have lower tick spreads and buyers or sellers are always available at lower price gap. Tick spreads are basically related to the liquidity of stocks. Higher the volume, lower the tick spreads and vice versa.
Read Technical Charts
Before picking any stock for intraday trading, always read its technical charts. The technical charts help in predicting the future price movement of the stock and accordingly position can be taken. Technical charts ensure that there would be a minimum risk with maximum profit opportunity.
An intraday trader always looks for stocks with good price movement and the stocks in which the direction of price movement can be predicted. One such factor that influences the price movement is news flow. The stocks are very sensitive to any news regarding them. Therefore, if there is any news regarding a stock, the trade should be taken according to the news related to the stock. Like for example, always purchase a stock that has positive news and always short sell the stock when there is negative news related to it.
The above mentioned are a few factors that you must consider before entering into intraday trading. A good trader is one who considers the above factors along with other skills. If you are new to the stock market and need assistance related to intraday trading, you can open a demat account with Kotak Securities and avail their premium services.