What Are Intraday Trading Rules & Stock Picking Strategies?
Stock markets are very volatile. This makes them unpredictable and confusing for investors and traders alike. Intraday trading rules and stock-picking strategies aim to identify profitable trades during these periods of volatility.
Intraday trading rules and stock-picking strategies are essential for novice and professional investors. One can trade effectively and profitably by learning how to apply them correctly.
How to choose stocks for intraday trading?
To choose stocks for intraday, follow the below strategies:
1. Choose liquid stocks
When selecting stocks for intraday trading, liquidity is one of the essential things to consider.
Traders can choose liquid stocks for trading since they have to buy and sell the shares on the same day. This prevents issues with finding a buyer or seller when the time comes to square off the day’s position.
Liquid stocks often have high trading volumes allowing traders to buy and sell without affecting the prices.
2. Avoid highly volatile stocks
Traders are advised to invest in stocks that have adequate volatility because, without any price movements, traders will not have significant potential for profits.
However, traders are advised not to trade in highly volatile stocks to avoid worse outcomes. Investing in highly volatile stocks will increase the risk, and traders might lose their capital.
3. Follow the market trend
One strategy that traders can utilise is following the trend.
During a bull market in the stock market, traders must hunt for stocks that might rise in value. On the other hand, traders might look for stocks that might fall during the bear run.
4. Momentum of stocks
Momentum stocks are those in which the stock price changes in step with the strength of the momentum. Day traders can buy these stocks when the market is in an upward trend or sell these stocks when the market is in a downward trend to make a profit. One should also keep a track of upcoming IPOs.
Rules for intraday trading
Traders can follow the below rules while doing intraday trading:
1. Develop a strategy and stick to it
The first rule of intraday trading is that traders must develop a strategy and stick to it. This means they ought to have a plan for each day, week or month. Developing a strategy will make it easier for them to stay focused and ensure that nothing goes wrong while trading.
Sticking to the strategy is also very important. This is the key to success in any market and gives one the confidence to make educated decisions.
Investors must also remember that when trading or investing in stocks or upcoming IPOs, they must have a Demat and a trading account.
2. Be patient
Secondly, be patient. The markets are moving, and traders’ trades might not do as well as they had hoped.
However, if one lets themselves get impatient and close all open positions too early, this could lead to losing money because prices could change in their favour.
3. Always close all open positions
Some traders could be tempted to take delivery of their holdings if their goals are not met. This is one of the worst mistakes, and even if traders must record a loss, it is essential to close all open positions. Failure to close the position exposes the trader to overnight risk.
Contrary to what investors often do on the stock market, intraday trading is a riskier approach to investing money. To prevent any loss and make a lot of money quickly as an intraday trader, it is crucial to understand the fundamental and best tactics.
Meanwhile, a brief recommendation for those just starting intraday trading is to invest what they can comfortably afford without jeopardising their financial circumstances.