6 Factors to consider when picking stocks for Intraday Trading


Intraday trading is a high-stakes exercise where traders initiate and close a trade on a given day. For instance, if you purchase 500 shares of Unilever in the morning at Rs. 920 are and sell it at the close of trading at Rs. 928; you would have booked a profit of Rs. 4000 in the day.

Here you may want to know that the transaction may not result in any delivery as your net position would be zero in the given day. In intraday trading, you can also sell shares in the morning and purchase it in the evening if you feel that share prices are likely to decline.

You can also use the rolling settlement mode in intraday trading if you are looking to short-sell stocks without delivery. Every trader is keen to select the right stocks to trade intraday, hence, a vital step that can determine profit or loss.

Let’s look at six intraday tips you must consider when picking stocks for intraday tradin

1. Stock’s liquidity

When considering a stock for intraday trading, you may want to take into account market liquidity as a factor. One way to assess liquidity is to look at the everyday volumes as a fraction of market capitalisation.

Liquidity = Average Daily Volume / Market Capitalisation

To consider a stock for intraday trading, you may want to take a minimum liquidity ratio of 10% as a reference point.

2. Trading with low impact cost

Low impact cost is the impact on the share price when you make a substantial purchase or sell order on shares. If the effect caused is high, you could have a greater risk of intraday trading; hence you may want to stay away from dealing in such shares. This is because, a high impact cost could cause you to pay an elevated price for a stock that could be disadvantageous, especially, if you have placed a large order. Opt for stocks that have low impact cost and offer you better liquidity.

3. Ownership pattern of stock

You may want to find out if the stock you are interested in is widely owned. Look into the website of the stock exchange to understand the stock’s ownership pattern and to receive cues of its trading patterns. Shares that are not widely owned tend to be more fickle. This is because a handful of stock-owners can manipulate the stocks easily. Hence, if you are an intraday trader with well-known brokerage such as Kotak Securities, you may want to prefer stocks that are widely held and offer greater liquidity. This can cut down your risk significantly.

4. Stock ticks

A tick is exceptionally critical for an intraday trader as it is a part of the liquidity and impact cost debate. A tick is a minimum gap between two orders. To qualify for an intraday trade, you must ensure there are enough volumes on each tick.

For instance, you may have placed an order and realised your order implementation had taken place several ticks away. In intraday trading, traders capitalise on trends and typically place orders; this is why the narrower the tick gap, the more beneficial it is for you.

5. Transparent chart patterns

Intraday traders bank considerably on technical charts. This is because stocks display ups and downs over a while and these chart patterns are crucial in making the right decision. You may want to trade in a stock that has adequate history and transparent trading pattern. A company stock that displays a long history can reveal patterns that could help you in making a buy or sell decision.

6. Price sensitivity to news

Intraday traders generally rely on two elements — sensitivity to news and chart patterns. As an intraday trader, you need to look at stocks that show sensitivity to news flows.

Every intraday trader looks to select the right stocks each day to make the right investment decision. For an intraday trader, picking the right stocks can provide momentum towards profit, and hence, these intraday tips can help you pick predictable and high-value stocks that can make a substantial difference to your portfolio.

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