09/02/2019
Rules for Picking Stocks When Intraday Trading
There are thousands of equities to choose from, and day traders can pick virtually any sort of stock they want. So the first step in day trading is figuring out what to trade. Once one, or several, stocks or ETFs have been selected, the next step is coming up with some ways to profit from them.
How to Select Stocks for Intraday Trading
Rule 1: Liquidity, liquidity, liquidity. Liquid stocks have big volume, whereby larger quantities can be purchased and sold without significantly affecting the price. Since intraday trading strategies depend on speed and precise timing, a lot of volume makes getting into and out of trades easier.
Rule 2: Medium to High volatility. Day traders require price movement in order to make money. Day traders can choose stocks that tend to move a lot in dollar terms or percentage terms, as these two filters will often produce different results. Stocks that tend move 3% or more per day have consistent large intraday moves to trade. The same is true for stocks that tend to move more than $1.50 per day.
Rule 3: Group followers. While there are those who specialize in contrarian plays, most traders look for equities that move in correlation with their sector and index group. This means that, when the index or the sector ticks upward, the individual stock's price also increases. This is important if the trader wants to be trading the strongest or weakest stocks each day (discussed in more detail later). If a trader opts to trade the same stock every day, it is wise to focus on that one stock, and there is no need to worry about whether it is correlated with anything else
