Finance

Intraday Trading Stock Selection Through Demat Process

Intraday trading can be lucrative with the correct strategies, and picking the right stocks for intraday trading is one of those strategies. An intraday order means buying stock not to hold but to sell before the end of the trading day, hoping for profits with an increase in the share price. You need to have a demat account to start trading. Intraday traders are allowed to sell the shares even if they do not own them and buy them later during the day to square off the position. The success of such strategies is based on the right selection of stocks. Hence, picking the right stock means profitability in many ways. Many times traders can make significant profits. Just pick the right stocks and strategize the trade based on the market analysis. Let us help traders to hone their stock selection skills. 

Typically, there are two common stock selection methodologies for day traders:

  • Live market stock selection 

Traders select the stock during the pre-market session based on market sentiment. Also, they can select the stocks after 15 minutes of the market opening. They pick the top gainer/loser from the exchange index, like NSE, and draw the support and resistance line based on the premarket volume during the last 2 or 3 days.

  • Aftermarket selection 

Traders select stocks based on the end of the day (EOD) data, like high volume, open interest, top gainer, and a loser. Also, they can pick stocks based on breakouts within a time frame. They can consider support, resistance, trend line, chart patterns, and other technical analysis.

Stock Selection Strategies

You should aware with the share market basics if you are going to invest in share market. Certain day trading stock selection strategies used for these methods are discussed below:

  • Look for Stocks with High Demand or Liquidity

Active traders prefer to trade liquid stock in terms of high volume and high open interest. They ensure that the liquidity of the stock is high enough so that they can buy or sell stocks at a favorable time with high-profit potential. Another important thing is that high liquidity stocks can be bought and sold in large quantities to maximize profit. 

Traders need to evaluate the liquidity at different price levels. You can find that the high liquidity of some stocks at low prices and their trading volume can decline drastically beyond a certain level and buy such stocks at the right time for intraday trading. Day traders prefer to trade stocks with a liquidity of more than 10%. Therefore, you can use the following formula to calculate the stock liquidity in the market:

Stock Liquidity = Average daily volumes traded divided by the Market capitalization.

  • A balanced approach to stock volatility

Volatility means the fluctuation in a stock value. Based on the quantum of price fluctuations, stocks for day trading can be categorized as low, medium, and high volatile stocks. Less volatile stock can limit your losses, and at the same time, the profits would not be amplified and only minimal. Low-risk profile traders usually lean toward low-volatility stocks. 

On the other hand, high volatility stocks can increase a day trader’s profits, but if the market goes in the opposite direction suddenly, the losses can be unmanageable. Day traders can look at high risk, high reward mantra, and their risk profile to choose the stocks. A possible solution is to select stocks whose price is expected to fluctuate within this specific range only. 

Sector Trends – Pick highly correlated stocks. 

It is good for day traders to pick the highly correlated stocks to a broad sector. Traders check the sector-wise performance of stocks as it can give you a clear idea of the trend and thus, identify correlated stock price movement.

  • Technical Analysis

Technical analysis involves strategies that can help traders time the market. Support and resistance are the key levels to taking appropriate trading positions.

Thus, as a day trader, one does not have the luxury of holding on to the stock for long. One wrong decision can lead to hefty losses. Determine the risk appetite and ensure the necessary due diligence before picking the stocks for active trading.

How to open Demat account and trading account’ to save on cost is also an important aspect for day traders as they trade frequently and generally in high volume. It makes the brokerage charges a concern for them. They can open their brokerage account with discount brokers offering subscription-based brokerage plans and save on trading charges.

Read also:- Intraday Trading Time Analysis

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