What Kind of Stocks to Choose for Intraday Trading?

Last Updated: 14 Jan 2025

Doing intraday trading is one part of the story. The bigger question is how to pick stocks for intraday trading. Not all stocks would be eligible to trade intraday as you need stocks that are predictable yet responsive to news flows. There are several ways but there are some broad rules and parameters that you can follow. For example, you can combine stability, responsiveness, and patterns to decide how to select stocks for intraday.

The big challenge is to first prepare a universe of stocks for intraday trading. Your universe cannot be more than 50-60 highly liquid stocks. Even these many stocks are tough to track and trade so you need to zero in on the 10-12 best stocks for intraday trading. Now, when we say best stocks for intraday trading, it is not about the profits they could give but how reasonably possible it is to trade them profitably consistently.

How to choose stocks for intraday trading?

Let us now get to the practical aspect of how to choose stocks for intraday trading. The first step to zeroing in on the best stocks for intraday trading is by creating a trackable universe of stocks. You can use filters and screeners to zero in on these stocks. But remember that the ones you identify as the best stocks for intraday trading must meet your intraday trading criteria in almost all ways.

Let us start with some elementary steps to identify the best stocks for intraday trading scientifically and systematically.

• The first rule is to always stick to the time-tested and liquid stocks universe. They will not enable easy execution but they also ensure that you don’t get caught up in spread risk or the risk of not being able to exit intraday.
• One interesting way to identify the best stocks for intraday trading is to filter them on their movement. Look at both the rupee movements and the percent movement to get a clearer idea.
• By being wary of stocks that are too closely correlated to the market as they almost become a replica of the.
• It is best to look at stocks that have their own unique price movement patterns. They are normally the best stocks for intraday trading.
• A stock may be volatile and look attractive but such unpredictable stories have their limitations. You may get into such stocks and then find yourself stuck without an exit route or the spread may be too large.
• Avoid stocks that have limited free float and where the promoter holding is too high. These won’t qualify as the best stocks for intraday trading as they can be easily controlled by a clutch of traders and you need objective stocks.

Remember, that as an intraday trader your success begins with identifying the right stocks to trade in. Once you have identified such stocks, you can closely monitor and evaluate these further to identify trends. It is only when you can identify distinct trends that you can devise your entry and exit strategies.

So, let us quickly sum up the rules for stocks to qualify as the best stocks for intraday trading.

1. The stocks must be liquid and must have a large volume of trading throughout the day. This means sufficient volumes and also thin spreads to reduce your spread risk.
2. Yes, you need volatility and the volatility must be medium to high. However, the volatility cannot be extremely high or extremely low. Trends must be identifiable.
3. Never try to beat the market with the stock intraday or beat the daily trend. A good intraday stock follows the broad trend and so should you.
4. One criterion of best stocks for intraday trading is a stock that follows the group trends and indicators closely. An example is an IT stock that tags dollar strength.
5. Don’t look for contrarian stocks in intraday trading. That is for long, long-term investors. Look for stocks that follow a pattern that can be explained and extrapolated.

Finally, let us look at the types of stocks that will typically fit your bill as the best stocks for intraday trading. Here are five types of stocks that will suit your intraday trading.

• The first kind of stock is the trend stock that follows distinct trends that can be analyzed and extrapolated. Once you grasp this trend, you are good to trade intraday.
• Upper breakout stocks are also good for intraday trading. You need to get in after they decisively break above the resistance and keep stopping loss below the resistance.
• Lower breakdown stocks are also good for intraday trading. You need to sell them after they decisively break below the support and keep stop loss above the support.
• An easy way to intraday trading is in herd stocks. For example, when chemicals are doing well, you can pick up any liquid chemical stock intraday and multiply the effect.
• One way is to trade intraday on momentum. For example, stocks that are making new highs or 52-week highs have momentum in their favor and are good intraday picks.

Let us sum up the most important issue when it comes to picking the best stocks for intraday trading. The said stock must be liquid, show clear trends, have low impact costs, and must respond proactively to news flows. Above all, avoid stocks that are very closely held or closely owned. That is the starting point to select stocks for intraday trading.

How to start intraday trading?

You may get tired of listening to this ad nauseam but any trading, whether intraday or delivery, must begin with opening your trading account and Demat account. Remember, intraday trading does not result in delivery, so do you need a Demat account if you only intend to trade intraday. The answer is you do require as SEBI rules stipulate that no trading in equity in any form is permitted without having a Demat account linked to a trading account.

If you are a frequent and regular intraday trader, then it is best not to mix up your intraday trading with your regular delivery trading. Keep that account separate as it is easier for tax purposes and also for monitoring performance and profits. You can also sign up for the right tools in this case that will help you with intraday trading.

Here are some stepping stones for starting intraday trading. Before you commence intraday trading, spend some time examining daily charts so that you can familiarise yourself with the price patterns, trends, breakouts, etc. You have to be an analyst and trader. Various tools give technical support and most importantly keep abreast of the news flows.

Factors to Consider While Selecting Stocks for Intraday Trading

Intraday trading requires a well-thought-out approach to minimise risks and maximise profits. Here are some key factors to consider when choosing stocks for intraday trading:

Liquidity

Liquidity indicates how easily a stock can be bought and/or sold with little effect on the stock price. Liquidity is vital to intraday traders as it facilitates speedy entry and exit. High volumes make stocks more liquid, which is what you need for intraday trading. This allows traders to get in and out of positions quickly, reducing the risk of losing profit due to price slippage.

Volatility

Volatility means how much a stock goes up or down on a given day. Higher volatility is better for intraday traders as it allows them to make a profit in short intervals. Stocks that move a lot in price offer greater opportunity for price action to take advantage of as traders. Too much volatility can also be risky. So you have to find the right balance.

News and Events

News, earnings reports, and other events often impact stock prices. Intraday traders should keep themselves abreast with the latest news concerning their stocks. A positive news article may send a stock price skyrocketing in value, and a negative news article may send it plummeting. News organisations provide up-to-date coverage on factors that affect stock prices, enabling traders to learn and adapt more accurately.

Sector Performance

Individual stocks can be quite sensitive to how the broader sector or industry is doing. It is important to analyse the health of the sector in which the stock lies. The better a sector’s performance, the better a stock’s price will move. Conversely, stocks in a weak group may find it difficult to have a big upside.

Technical Indicators

Intraday traders heavily use technical analysis to determine entry and exit points. They can use key indicators, including moving averages, the Relative Strength Index (RSI), and Bollinger Bands, to identify trends and potential reversals. A stock with positive technical indicators will have a higher chance of performing well in intraday trading.

Price Range

Selecting stocks with a reasonable price range for intraday trades is paramount. High-priced stocks may need larger market caps for investors to realise their potential, while low-priced stocks may have widening spreads, making it difficult for traders to book profits. Finding stocks in a significant price range offers greater profit potential and manageable risk.

What are the Types of Strategies Day Traders Use?

Day trading strategies vary in execution depending on market trends, stock behaviour, and individual day traders’ risk tolerance. Some of the most popular strategies utilised by day traders are:

Scalping

Scalping is one of the fastest and most popular day trading strategies. It involves making numerous small daily trades to capture tiny price movements. Scalpers aim to profit from very short-term price changes, often holding positions for only a few minutes. The key to this strategy is high-frequency trading, which requires a substantial amount of focus, quick decision-making, and low transaction costs.

Momentum Trading

Momentum trading focuses on stocks or assets trending strongly in one direction, either upwards or downwards. Day traders using this strategy look for stocks with high volume and significant price movement, aiming to capitalise on the continuation of the trend. These traders typically enter positions early in the trend and exit once they see signs of a reversal. Momentum trading requires careful monitoring of stock movement and news catalysts.

Breakout Trading

Breakout trading involves identifying key support or resistance levels and trading when the price breaks through these levels. A breakout above resistance suggests an upward trend, while a breakdown below support signals a potential decline. Traders using this strategy enter positions once a breakout occurs, anticipating further price movement in the direction of the break. It’s crucial to watch for confirmation signals to avoid false breakouts.

Reversal Trading

Reversal trading aims to profit from price corrections after a strong trend. Traders using this strategy look for signs of an overbought or oversold condition in stock, indicating that a reversal is likely. Reversal traders often use technical indicators like the Relative Strength Index (RSI) or candlestick patterns to identify potential turning points in price. This strategy requires careful analysis and can be riskier due to the unpredictability of reversals.

Range Trading

Range trading involves identifying price levels where a stock fluctuates between a defined upper resistance level and a lower support level. Traders using this strategy buy near support and sell near resistance, expecting the stock to continue moving within the range. Range trading works best in stable market conditions, where the stock does not experience strong trends.

What is the average price?

The concept of an average price is important as you don’t buy all stocks in one go. For example, if you buy 100 shares of RIL at Rs.2000, 200 shares at Rs.2050, and 300 shares at Rs.2100, what is your average price. Is it Rs.2050, which is the average of the 3 prices? No, it will be the weighted average as you bought different quantities so you must weigh these quantities by the prices. Here is how you get the average price.

Buy Price	Buy Quantity	By Value	Quantity Weight	Wt. Price
100	Rs.2,000	Rs.200,000	0.1667	333.4
200	Rs.2,050	Rs.410,000	0.3333	683.27
300	Rs.2,100	Rs.630,000	0.5	1050
600 shares		Rs12,40,000		Rs.2,067 (rounded)

So, the correct average price in the above is Rs.2,067 and not Rs.2,050. So, if you sold these 600 shares of Reliance at Rs.2060, you may think you made a profit of Rs.10 but actually, you have made a loss of Rs.7, not even counting brokerage and statutory charges. That is why the average price is important.

For tax purposes, it is not the average price but the FIFO (First in First Out) method that is used to calculate the profit or loss. But even here, your guiding price should still be the weighted average price.

Frequently Asked Questions

How to check stocks liquidity?

You can check the liquidity on the trading terminal but remember that the price pane does not show you hidden orders. But you can see the chart on volumes executed on the stock for the day and for the past few days, which is good enough.

Is there a limit to the daily number of transactions?

No, there is no such limit and the only limit is posed by the margin that you can place with the exchange. However, as an intraday trader, it is best to ensure that you do not overtrade and end up bearing too much of a cost that is not justified by the returns.

How many is an ideal number of stocks for intraday trading?

You can have a universe of around 50 stocks to choose from but you can at best track only around 10-12 stocks on a real time basis. Limit your daily trading population of stocks to just about 10-12 and keep an eye on the 50 stocks if you can add any of them.

How to choose safe stocks for intraday trading?

Focus on stocks that are liquid, have low trade spreads in the market, ownership is not concentrated and focus on stocks that show a decipherable trend.

What is the difference between buying stocks on an intraday and a delivery basis?

Intraday trading involves buying and selling stocks within the same day to profit from short-term price movements. Delivery trading refers to purchasing stocks and holding them for an extended period, typically longer than a day, with the expectation of long-term gains.

How can I make consistent profits using intraday trading?

Consistent profits in intraday trading require a solid strategy, technical analysis, strict risk management, and disciplined execution. Focusing on stocks with high volatility, staying updated on market trends, and using tools like stop-loss orders can help mitigate risks and improve chances of making profitable trades daily.

What happens if I don't sell intraday shares?

If you don’t sell intraday shares by the end of the trading day, your broker will automatically square off the position. This means the shares will be sold at market price, potentially incurring unexpected losses or gains. It may also lead to penalties or additional fees.