Intraday Trading Rules & Stock Picking Strategies

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Intraday Trading Rules & Stock Picking Strategies

There are hundreds of stocks to select from, and day traders may buy almost any stock they desire. So, for a day trader, the first step is to decide what to trade. Once a trading opportunity has been found (one stock, numerous stocks, or exchange-traded funds ETFs, for example), the next stage is to devise strategies for profiting from it.

Key Takeaways

  • Day traders that use intraday tactics use a number of approaches to benefit on price movements for a specific asset.
  • Day traders should look for equities with plenty of liquidity, moderate to high volatility, and a large number of followers.
  • Identifying the best stocks for intraday trading entails separating the current market trend from any external noise and then profiting on that trend.

How To Choose Stocks For Day Trading

How to Select Stocks for Intraday Trading


The amount of liquid stocks is often high. This enables bigger volumes to be acquired and sold without having a substantial influence on the price. Because intraday trading tactics rely on speed and precision, a high level of volume makes it simpler to enter and exit transactions. Depth is also important since it indicates how much liquidity a stock has at different price levels above and below the current market bid and offer.

Medium to High Volatility

To earn money, day traders need price movement. Day traders might choose equities that fluctuate a lot, either in dollars or percentages. These two filters will often generate opposite results. Stocks that move 3% or more every day have substantial intraday swings that are consistent. The same may be said for equities that move more than $1.50 every day.

Group Followers

While some traders specialize in contrarian trades, the majority of traders seek shares that move in lockstep with their sector and index group. This implies that when the index or sector rises, the price of the particular stock rises as well. This is critical if the trader want to trade the strongest or weakest equities on a daily basis. If a trader chooses to trade the same stock every day, it is best to concentrate on that one stock; there is no need to be concerned about whether it is associated with anything else.

Entry and Exit Strategies

You may have chosen the best stock in the world, but earning from it will need specialized tactics. While there are different intraday tactics, the key is to follow some set principles. You may increase your chances of success by hunting for specific intraday trading indications.

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Trade Only with the Current Intraday Trend

The market moves in waves, and it is the trader’s responsibility to ride those waves. Focus on taking long trades during an upswing. Focus on taking short trades during a decline. Intraday trends do not last forever, but one or two trades (or more) might be made before a reversal occurs. Begin trading with the new trend when the main trend switches.

The hardest aspect is identifying the pattern. Trendlines provide a simple and effective entry and stop-loss method. The SPDR S&P 500 (SPY) chart below depicts many short-term patterns throughout a typical day.

Image by Sabrina Jiang © Investopedia2020

While trading in real-time, more trendlines may be added to show the varied degrees of each trend. Adding extra trendlines may give more signals as well as deeper insight into shifting market dynamics.

Trade Strong Stocks in an Uptrend, Weak Stocks in a Downtrend

Most traders will find it advantageous to look at equities or ETFs that have a moderate to high correlation with the S&P 500 or NASDAQ indexes when deciding on the best stocks for intraday trading. Then, identify whether stocks are comparatively weak or powerful in comparison to the index. This provides an opportunity for day traders since a strong stock may rise 2% when the index rises 1%. The stock that moves the most offers greater opportunities.

When the indices and market futures are rising, traders should hunt for equities that are rising faster than the futures. When the futures market falls, a strong stock will not fall as much (or may not even pull back at all).In an upswing, these are the stocks to trade since they tend to lead the market higher and hence have greater profit potential.

When the market indexes and futures are falling, it might be lucrative to short sell equities that are falling faster than the market. When the futures rise inside a downtrend, a poor stock will not rise as much (or will not move up at all).When the market is tumbling, weak stocks provide higher profit possibilities.

Stocks and ETFs that outperform the market may alter on a daily basis, while particular sectors may be generally strong or weak for weeks at a time.

The chart below compares the SPDR S&P 500 to the SPDR Select Technology Fund (XLK).In comparison to SPY, the blue line, XLK, was rather strong. Both ETFs rose throughout the day, but XLK was a market leader and beat SPY on a relative basis since it had such huge gains on rallies and significantly lower falls on pullbacks. If you are going to purchase anything, make the best investment possible.

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Image by Sabrina Jiang © Investopedia2020

The same may be said for short transactions. Short sellers should target equities or ETFs that are doing poorly. As a result, when prices fall, you are more likely to be in stocks or ETFs that will fall the greatest, enhancing the trade’s profit potential.

Be Patient and Wait for the Pullback

Trendlines are only an approximation of where price waves will begin and conclude. As a result, when picking stocks for intraday trading, traders might utilize a trendline to get an early entrance into the following price wave in the trend’s direction.

When starting a long position, wait for the price to fall down approaching the trendline and then back up. A price low and then a higher price low are required to construct an upwardtrendline. The line linking these two spots is drawn and then stretched to the right. On the chart below, the price bounces off the trendline a few times before falling through it for the third time.

Image by Sabrina Jiang © Investopedia2020

Short selling in a decline is analogous. Wait for the price to go up to the downward-sloping trendline. Then, when the stock starts to fall again, you utilize this as a trading signal to enter the market.

These two long trades provide a low-risk entrance by being patient. The buy is done around the stop-loss level, which is set a few pennies below the trendline or the most recent price low established right before entering. As previously said, trends do not last forever, thus there will be lost transactions. But what counts is that an overall profit is produced, even with the losses.

Take RegularProfits

Because day traders have limited time to profit, they must spend as little time as possible on deals that are losing money or heading in the wrong direction.

Here are two easy principles for profit taking when trading with trends.

  • Take gains in an uptrend or long position at or slightly above the previous price high in the current trend.
  • Take gains in a downtrend or short position at or slightly below the last price bottom in the current trend.

The chart below shows the entrances and departures. The chart indicates that when the trend rises, the price pushes through previous highs. This allows you to leave any lengthy position you’ve taken. The similar strategy may be used to profit from downtrends; gains are taken at or slightly below the trend’s preceding price bottom.

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Image by Sabrina Jiang © Investopedia2020

When the Market Stalls, Don’t Play

Markets do not always follow trends. Intraday trends may flip so often that determining an overall direction might be difficult. If key highs and lows are not reached, ensure that intraday fluctuations are substantial enough for the possible profit to outweigh the risk. For example, if you risk $0.10 a share, the stock or ETF should move sufficiently to provide you a profit of at least $0.15 to $0.20 utilizing the rules above.

Switch to a range-bound trading strategy if the price is moving in a range (not trending). Our sketched lines shall be level, not angled, throughout a range. However, the following general ideas apply: Buy when the price goes to the lower horizontal region, which serves as support, and then begins to rise. Short sell when the price crosses the top horizontal line, or resistance, and begins to fall.

When purchasing, aim to leave around the top of the range rather than directly at the top. When shorting, aim to leave in the lower half of the range rather than at the very bottom. The possible gain should outweigh the danger. Before entering on a buy signal, place a stop-loss just below the most recent low, or just above the most recent high before entering on a short signal.

Many traders find it difficult to switch between trend and range trading. As a result, many traders choose one or the other. When markets are ranging, stand back and concentrate on trading equities or ETFs that tend to trend. Avoid trading during trends and instead concentrate on trading equities or ETFs that tend to vary.

The Bottom Line

Identifying the best stocks for intraday trading entails separating the current market trend from the noise. The duty of a trader is then to profit on that trend. The top intraday trading equities have certain characteristics, including liquidity, volatility, and correlation. However, it is equally critical to use the proper entrance and departure tactics.

This might be aided by studying trendlines and tracking price waves. There are several techniques to trade, and none of them are always successful. If the circumstances aren’t conducive to implementing your methods, save your money for when they are.

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