Rules for picking stocks for intraday trading

You must choose stocks wisely if you wish to learn how to trade intraday. This guide contains tips on what is needed to start intraday trading shares for a maximum outcome on your investment. As a bonus, you will also learn how to pick the best stocks for your strategy.

How to choose stocks for intraday trading?

When choosing the best stocks for your intraday trading strategy, you must consider several factors. Let’s take a look at what is essential to focus on to master how to do intraday trading like a pro.

Monitor stock liquidity

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Liquidity is the degree to which an asset can be bought or sold in a short period (one day). It is measured by the number of investors who want to buy and sell an asset simultaneously, as well as the value of that asset.

In intraday trading stocks, liquidity refers to how quickly a stock can be bought or sold. A stock with high liquidity will be able to be purchased or sold in less than one minute of trading time. A stock with low liquidity will take longer to realize because fewer traders are available for it.

There are two main types of stocks: Iilliquid and Liquid. Illiquid stocks don’t have enough buyers and sellers to make it possible for them to trade quickly. Liquid stocks are those that do have lots of buyers and sellers, making them easy to trade daily.

Note! Make sure to identify and trade liquid stocks for the best results on your investment. 

Pay attention to medium to high volatility stocks

Price movement is essential to earn extra income in intraday trading stocks. Medium to high volatility stocks have a high rate of fluctuation in price. They are often more volatile than others, and their prices swing widely daily. Such stocks generally fall into these categories: financials, technology, media, and energy. They tend to be prone to significant price swings in the short term, making them an attractive choice for intraday traders.

Select stocks the day before trading

Although intraday trading mostly requires quick decision-making, you can choose stocks the day before to ensure you are not in danger of losing.

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Here is how to select stocks for intraday trading one day before:

  • Analyze how the selected stocks and the market as a whole moved today. It is helpful to follow the leaders of gain and the leaders of losses. Also, note which stocks hit their ranges today and the ones with high trading volumes.
  • Keep a close eye on the news after market hours, which may affect the next day’s early trades. Usually, in the first 15 minutes of the market, stocks typically react to the previous night’s events.
  • Analyze stocks selected for trading at different time intervals.

Group followers

In the stock market, group followers are people who purchase or sell a stock at the same time. It’s like a crowd of investors who follow the same company and watch its stock price move based on their collective analysis of the company’s value and performance. This approach gives investors a more informed perspective on their investments because they have access to information that isn’t available to individual investors.

The more the buy-side and sell-side activity in a given stock, the higher its value. It is because more people are likely to buy or sell when increased activity is on both sides of the market.

For example, if there are many buyers and few sellers for every share of stock, this will cause it to go up in value as more people want to buy shares than there are available for them to purchase at any given time.

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Entry and exit strategies

Even if you have picked the best stocks, the profit from investing in them depends on the right choice of strategy. There are a great many approaches to intraday trading, but whichever one you follow, it is crucial to adhere to specific established rules. Let’s explore them below.

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Trade in line with the current intraday trend

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Trading in line with the current intraday trend of stocks is a great way to get additional income. If you follow the trend, you’ll be able to predict what direction the stock will move.

The first step is finding the current intraday trend for your chosen stock. The easiest way is to just look at the last few days of price movement to see if any trends have started or stopped recently (maybe this week). 

Then you can use these as reference points and look at how they compare with other similar stocks that have been trading recently and their historical price movements over time (like previous years). This analysis will give you an idea of the current stock trend based on past patterns and trends in that particular industry or sector.

Trade strong and weak stocks in an uptrend and downtrend

Trading strong stocks in an uptrend and weak stocks in a downtrend are common, but it can be tricky to know when you should do this. A stock that’s going up strongly is likely to keep going up, so if you buy a stock that’s been trending upward for several days and the price hasn’t stopped going up, it’s a good idea to hold on to your position until the trend changes or the price stops rising.

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On the other hand, many downtrends are caused by economic weakness or an unexpected event. So if you see a stock that has been steadily declining for several weeks, it may simply be taking its cue from what’s happening in the economy or industry. If there’s no apparent reason why the price of this stock should go down further, it could be better to wait until some new information comes out before deciding whether to buy shares at current prices.

Be patient and wait for the pullback

Being patient is one of the most important things you can do when investing. It’s not always easy to be patient, but if you have the patience to wait for the pullback, it may just pay off for you in the long run.

Many people think the only way to earn extra income in stocks is by buying low and selling high. But that’s just not true. It takes a lot of skill and analysis to know when a stock will fall so that you can buy it cheap while everyone else is panicking or selling out their positions.

The best way you can found to deal with this kind of challenge is by keeping track of my favorite stocks as well as their internals like earnings per share (EPS) and cash flow per share (FCF), which allows you to compare them over time so you can see how they’re performing relative to each other.

Set aside regular profits

When you are into intraday trading stocks, taking out profit from your investment is critical. Don’t just keep on investing your gains back into multiple shares. Instead, set aside a portion of the profit for yourself too. Because you never know when you start losing funds or stock starts moving in the wrong direction owing to any uncertain situation. 

How to use pullback trading strategy

You must plan out everything in advance. Ensure to have specific targets in mind, and upon reaching them, sell your stocks and save something for a rainy day. 

Buy put options

If there is a risk of a possible loss in a particular stock, you can safeguard yourself from it. Put options will give you the right to sell the shares at a predetermined price by a specified date. If the price of shares goes below in the future, you can still sell the shares at a strike price (the agreed price).

If you think that put options are overwhelming to understand, let’s simplify its concept with the help of an example. Suppose you hold ten shares of company X, whose current market price is $100 per share. There is significant uncertainty that the share price of company X will take a dip from $100 to $60 per share within two months due to the economic situation in the country.

Even though this uncertainty is widespread in the market, you don’t want to sell your shares at the moment. To cover this risk, you buy a put option at a premium of $5 per share, which lets you sell your shares at the lowest of $70/share if their price falls even below $70 within the next two months.

After one month, the price per share drops to $60. Now, the put options will perform their job, saving $5 per share ($70 less $60 less the premium of $5).

When the market stalls, don’t trade

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When the stock market stalls, it is important not to trade. The stock market is volatile, and it can be challenging to predict the best intraday timing and when a specific share moves. This means that when the market stalls, it is best to wait until the market has moved in the necessary direction before making any trades or investing.

For example, if you see a stock move upward by 10% and then stop moving upward, you may want to wait before investing in that company again. If a company has been steadily increasing in price over time, it may be worth waiting for them to show signs of slowing down before making any trades.

The Bottom line

To achieve results in intraday trading, you first need to learn how to choose the best stocks for the developed strategy. Ensure to study shares of companies under the S&P 500 index, their past trends, and the current patterns they are riding. 

Remember that no stock or strategy can guarantee the outcome of your trade, and there is always a risk of losing your investment. To reduce it, go through training, carefully analyze the market and develop your own intraday trading rules; for example, stop opening trades when you lose 10% or more of your deposit.

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