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Many newbies are drawn towards intraday trading with a dream of making an overnight fortune. Although intraday trading has great potential, having unrealistic expectations can put you at high risk. It takes a great deal of dedication, patience, and discipline across various dimensions of intraday trading to become successful. One such area that demands discipline is - stock selection.

While you can learn about the other aspects of intraday trading on Angel One’s website, we shall focus on how to evaluate and pick the right stock for intraday trading in this article.

So without further delay, let’s take the plunge.

Why is evaluating stock important for intraday trading?

Before going ahead with the factors, let’s understand why using them to evaluate stocks is vital. With over 1300 stocks listed on the NSE and over 5200 on BSE¹, deciding which stock to trade daily becomes an arduous task.

Moreover, not all stocks are actively traded on a day-to-day basis. While some are illiquid and have low volatility, others are extremely volatile with high price sensitivity.

It is next to impossible to track and analyse all the stocks every day to find a good trading opportunity. Thus, stock selection becomes the first and the most important step in the journey of becoming a successful intraday trader.

Factors to Keep in Mind while Picking Stocks for Intraday Trading

The groundwork for selecting the right stocks for day trading leads us to the below-mentioned few key factors that you must consider.

• Volatility in Price

While low volatility is not good for intraday trading, extremely high volatile stocks can be hurtful. Finding the right spot should be the goal. Usually, stocks with 3% to 5% price movement are considered ideal for intraday trading.

• Liquidity of the Stock

Trading in liquid stocks ensures that shares can be bought and sold in large volumes without any slippage. You can check the liquidity of the stock by ensuring that high numbers of buyers and sellers are present at all price levels.

• Correlation with the Index

To trade a smooth price momentum, ensure that the stock is correlated with the index. Let’s take the example of the Dollar Index and IT stocks to understand better. When the Dollar Index rises, the IT stocks move higher and vice versa. This is because IT stocks are directly correlated with the Dollar Index. The key is to benefit from the overall market sentiment.

• Bid-Ask Spread

Bid-ask spread indicates the gap between the buy and sell orders. Wider gaps lead to the execution of trade away from your desired entry point. With a high number of buyers and sellers, this spread is minimum, and thus, helps you execute trades better.

• Readable Chart Patterns

Reading technical charts is one of the primary courses of action that intraday traders carry out. Therefore, the company’s stock chart must provide readable historical patterns. Without noticeable price patterns, entering a trade would be like shooting in the dark.

Conclusion

Using the above-mentioned key factors, you can now easily shortlist the right stocks for intraday trading.

If you wish to dive into the intricacies of other components of trading, Angel One’s Knowledge Centre can prove to be of great help. It is a free knowledge bank designed to enlighten you with intraday trading-related concepts, strategies, and practices that help you trade better. Check out now to take your trading to the next level.

Happy Trading!

Disclaimer:

1. Source: https://www.bseindia.com/markets/equity/EQReports/allindiamktcap.aspx

2. This blog is exclusively for educational purposes

3. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Brokerage will not exceed the SEBI prescribed limit. https://bit.ly/2VBt5c5

Above views are of the author and not of the website kindly read disclaimer