Intraday trading, also known as day trading, involves buying and selling stocks within the same trading day. The goal is to capitalize on small price movements in liquid stocks. Choosing the right stocks plays a pivotal role in the success of intraday trading. This article outlines strategies to help you understand how to select stocks for intraday trading, with relevant calculations in INR (Indian Rupees).
Criteria for Selecting Intraday Stocks
1. Liquidity
Liquidity refers to the ease with which a stock can be bought or sold in the market without affecting its price. Highly liquid stocks usually have high volumes of trade. One way to measure liquidity is via the Average Trading Volume.
Let’s say a stock, ABC, has the following trading volumes over the past five days: 1,000,000; 1,200,000; 900,000; 1,100,000; and 950,000 shares.
Average Trading Volume = frac{(1,000,000 + 1,200,000 + 900,000 + 1,100,000 + 950,000) {5 ]
Average Trading Volume = 5,150,000 / 5
Average Trading Volume = 1,030,000 shares per day
A higher average volume signifies the stock's strong liquidity.
2. Volatility
Volatility measures the extent of price movements in a stock. For intraday trading, high volatility stocks are more attractive due to their potential to offer substantial intraday returns.
ATR is the average of such TR values over a specific period, giving a fair measure of a stock's volatility.
3. Market Trends
Traders should analyze market trends, including the direction of major market indices such as NIFTY 50 and BSE SENSEX. Stocks often move in tandem with the broader market.
4. News and Events
Stocks receiving positive or negative news tend to show significant intraday movement. Monitoring news platforms and staying informed about corporate announcements can help in selecting trending stocks.
5. Technical Analysis
Technical analysis involves using chart patterns and indicators to predict stock price movements. Common indicators include Moving Averages (MA), Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD).
For instance, a 50-day moving average can help identify uptrends and downtrends:
6. Sector Performance
Different sectors perform differently at various * due to economic events, policy changes, and other factors. Selecting stocks from trending sectors can enhance the probability of profitable intraday trades.
Assuming you have shortlisted a stock, XYZ, for intraday trading. You analyze its recent performance and find an Average Trading Volume of 2,000,000 shares, an ATR of 120 INR, and favorable news concerning a new product launch.
If XYZ opened at INR 800 and rises to INR 880 by mid-day, your potential intraday profit calculation per share bought at opening price would be:
Profit per Share = 880 - 800 = 80 INR
If you had bought 100 shares:
Total Profit = 80 * 100 = 8,000 INR
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Conclusion
Selecting popular stocks for intraday trading requires due diligence and significant analysis. Factors such as liquidity, volatility, news impact, market trends, sector performance, and technical indicators should guide your decisions.
Disclaimer
Intraday trading involves substantial risk, and it is crucial for investors to gauge all the pros and cons before participating in the Indian stock market. This article is for informational purposes, and thorough personal research and financial advice are recommended before making trading decisions.
By employing these strategies and tools, you can navigate the complexities of intraday trading in a more informed and strategic manner, potentially enhancing your trading outcomes.
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