Before we learn how to select stocks for intraday in India, we should look at what it is and its benefits.
What is intraday trading in India?
Intraday trading of stocks in India is the purchase and sale of stocks on NSE or BSE which is not carried to the next day and is usually closed by brokers by 3:15 PM Indian Standard Time.
Benefits of Intraday Trading:
- Leverage
- No overnight risk
- Capital remains free for other opportunities.
- Profit from very short term view on a stock.
How to select stocks for intraday trading?
The process to select intraday stocks is, to select liquid stocks which are volatile, medium to high, and follow trends. It is best to select stocks for intraday trading which you track and have some knowledge about.
Steps to select stocks for Intraday:
- Choose a liquid stock.
- Volatility: Medium or high
- Trend Following stock.
- Trade stocks you know.
- Change in Put-Call-Ratio
Let us discuss these steps in details:
Liquid Stock:
Intraday stock trading is usually done with higher quantity than a delivery trade. We want to make sure that we can buy required quantity and sell quantity quickly. This can happen in liquid stocks where there are a lot of buyers and seller at various price points and the spread is not too wide. For intraday this is a very very important factor. If a is not liquid don’t trade it intraday.
Volatility – Medium or high:
Intraday Trading means our buy or sell will be closed by the end of the trading day. We want to buy or sell a stock which can move up or down by a decent percentage for us to make a profit or loss. If the stock is not volatile, we might end up with a 0 profit loss but the brokerage and taxes will still need to be paid.
Trend Following stock:
Intraday trading is all about trend following, we want to get with the trend and make some profit by end of day. Stocks which usually follow trends(i.e. if they are going up, they keep going up and when they fall they fall for a while.) are usually better for intraday as the trade can be less uncertain and if the trend holds on the day we can make some profits.
Trade stocks you know:
Don’t buy or sell stocks you have never heard of before. This is good advice even for delivery stocks. For intraday, you need to know the reasons behind why you like a particular company and know how the price of the share usually moves. For example, XYZ company usually goes up at 12:30 PM, if you have noticed this you could possibly buy the stock for intraday just before 12:30 PM.
Change in Put-Call-Ratio:
Disregard this point if you don’t know much about options. Or Read about options here: What are futures and options?
Put-Call Ratio can tell us the general view of investors on a stock. For example: if investors are buying a lot of puts but not a lot of calls then the PC Ratio will be high, this indicates investors expect prices to fall. A big change in PC Ratio on a day can also signify a volatile move on the stock the next day, so select this stock as the intraday stock for tomorrow.
Risks of Intraday Trading:
- Leverage is a double edged sword. You might make a big profit but the loss will also be big.
- Timing the market is very very difficult. Even seasoned market experts will admit they can’t time the market.
- You might get distracted and not put a stop-loss. We can all be distracted at times.
- Emotional roller-coaster. Intraday trading with leverage can lead to being in profit for half an hour and suddenly in loss, as we are using volatile stocks. This can lead to stress and bad decisions.
Investopedia Rules for Day Trading
All information here is for educational/research purposes only, we do not recommend trading.