Intraday trading tips: 7 effective tools to select stocks for daily trading calls

Investors should always look for mid-high volatile stocks. These stocks have the potential to fluctuate in an intraday session and give potential returns.

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One should focus more on stocks with higher liquidity especially for intraday trading. It makes it easier for the traders to enter and exit a stock. As the low liquidity stocks always painful for the trades to take the entry/exit at a desired price.

Intraday trading can also be done efficiently with the stocks that have been in the news. Other major events like the announcement of financial reports, changes in management, or anything related to the company can affect the stock price as well.

So, it is beneficial to keep an eye on such stocks and then trade.

We spoke to Palak Kothari, Research Associate at Choice Broking on strategies which investors could follow for intraday trades:

•        Momentum Trading Strategy

Momentum trading is trading with the flow of the market. In momentum trading, the traders buy when the market is on a bullish run and then sell the same, when it loses momentum. Traders can take the help of news, announcements, etc. to choose a stock for momentum trading.

•        Reversal Trading Strategy

As the name indicates, a reversal trading strategy gives you a clear signal of when the on-going trend is about to reverse. It gives a lot of traders an opportunity to make the best out of the situation. You can accompany the strategy with various indicators like MACD and RSI for better results. In addition to this, you can also look for some candlestick patterns.

•        Breakout Trading Strategy

Breakout trading strategy involves trading beyond a specified limit (support or resistance). This means that if in the bullish market, the stock price breakout its resistance level, then this brings in an opportunity for traders to go long.

•        Gap and Go Trading Strategy

This strategy works great for people who are looking to short-sell. When the prices of a particular stock are opening more than the last day, it is a gap up, and if lower then gap down. This usually happens when certain news flows in the market and affects the stock price.

Candlestick Pattern:

•        Candlestick patterns are a financial technical analysis tool that depicts daily price movement information that is shown graphically on a candlestick chart.

Some of the common Candlestick pattern used by intraday traders is:

Bullish Hammer (H)

Presented as a single candle, a bullish hammer (H) is a type of candlestick pattern that indicates a reversal of a bearish trend. This candlestick formation implies that there may be a potential uptrend in the market.

Inverted Hammer (IH)

Also presented as a single candle, the inverted hammer (IH) is a type of candlestick pattern that indicates when a market is trying to determine a bottom. As the name suggests, the inverted hammer shares the same design as the bullish hammer candlestick pattern, except it is flipped invertedly.

Engulfing Line (EL)

An engulfing line (EL) is a type of candlestick pattern represented as both a bearish and bullish trend and indicates trend continuation.

In order to be a bearish engulfing line, the first candle must be bullish in nature, while the second candle must be bearish and must be “engulfing” the first bullish candle.

Comparatively, a bullish engulfing line consists of the first candle being bearish while the second candle must be bullish and must also be “engulfing” the first bearish candle.

Harami (HR)

The Harami (HR) candlestick is a Japanese candlestick pattern that may suggest either potential price reversal or bearish/bullish trend continuation. Translated from Japanese, Harami means “pregnant,” shown through the first candle, which is considered “pregnant.”

Piercing Line (PL)

The piercing line (PL) is a type of candlestick pattern occurring over two days and represents a potential bullish reversal in the market.

Some of the common indicators that are used by intraday traders are as follows:

•        RSI- Relative Strength Index helps a trader to study the market trend and then classify it as overbought or oversold. The default time period of the RSI indicator is 14, and the range varies.

•        Moving Averages- Moving average is another popular indicator used by intraday traders. It helps a trader in identifying the trends of the market and then choosing a stock accordingly.

•        Bollinger Bands- Intraday trading is all about playing with the volatility, and Bollinger bands are the right fit for finding out the same. The difference between the bands increases and decreases depending on the volatility in the market and therefore the traders can make a decision accordingly.

Use Stop Loss in Intraday Trading:

•        As discussed above, we select the volatile stocks for intraday trading. Now the volatile stocks fluctuate and are beneficial for the intraday traders, but if the market moves against your desire?

•        Since the volatile stocks move to some extent, it is important to use a stop loss. A stop loss is used to minimize your risks. This is a price that you set when you purchase security and when the current market price reaches here, the order is executed.

•        In technical analysis we see many time frames but for intraday it’s better to see 15min or 30 min time frame and place a SL below the support level if have a long position or place a SL above resistance level if have sell positions.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)