How to Select a Stock for Intraday Trading: Strategies That Work

According to the Securities and Exchange Board of India (SEBI), the total number of market participants opting for intraday trading has grown from 14.9 lakh in 2019 to 68.9 lakh in 2023. This growth highlights the increasing popularity of intraday trading in India and underscores the importance of understanding how to select stocks effectively.

Yet, the same SEBI study found that 7 out of 10 individual intraday traders in the equity cash segment incurred losses in FY23 — making stock selection not just a strategy, but a necessity.

Effective stock selection in intraday trading helps traders identify potential profit opportunities, manage risk, and improve the likelihood of achieving consistent trading outcomes.

This raises an important question: how to select a stock for intraday trading?

Continue reading to explore the answer in detail. You can also check out our complete guide on intraday trading in India to build your foundational understanding first.

Why Stock Selection Matters in Intraday Trading?

Stock selection is crucial in intraday trading as it directly influences profitability, risk exposure, and consistency in trading outcomes. The key reasons for selecting stocks carefully are discussed below:

Better Profit Opportunities

When you select the right stocks, you increase your potential of capturing meaningful price movements throughout the day. Since intraday trading relies on volatility and momentum, you should understand the right strategies and apply them to identify better entry and exit points.

Effective Risk Management

Proper stock selection helps reduce unnecessary risks. You can control potential losses and avoid sudden price swings that can negatively impact your trades during the day. Know more about risk management here.

Higher Chances of Consistent Trades

When you consistently trade well-selected stocks, your strategy becomes more reliable over time. It helps build confidence and leads to a more disciplined and structured approach towards intraday trading.

How to Select a Stock for Intraday Trading: 7 Ways Explained

Before entering into intraday trading, it is important to understand that success largely depends on selecting the right stocks. Knowing the best intraday trading strategies alongside the criteria below gives you a complete framework. Key criteria for selecting intraday stocks:

1. Look for Moderate Volatility

Volatility in intraday trading refers to the speed and magnitude of price movements for a stock within a single trading day. Look for stocks that move enough during the day, indicating optimal volatility.

It is difficult to generate profits with low-volatility stocks since they don’t move enough during the day. On the other hand, stocks with extreme volatility witness rapid and frequent price fluctuations. Choosing such stocks can lead to large, unexpected losses.

2. Choose Highly Liquid Stocks

Liquidity in the share market refers to how easily you can buy and sell a stock in the market. When it comes to intraday trading, it is highly essential to select stocks that are highly liquid in nature. It makes sure that you can exit positions easily and quickly without affecting the price significantly.

If you do the opposite (choose low-liquid stocks), you may face difficulty selling them compared to highly liquid stocks. Also, there is a potential for wider bid-ask spreads.

3. Follow the Market Trend

One of the most crucial practices in intraday trading is to keep an eye on the market trend. And you should trade in the direction of the overall market trend (whether it is an uptrend or a downtrend).

If the market is bullish, traders should focus on stocks that are showing strong upward momentum. Conversely, if the market is bearish, it is advisable to avoid taking fresh long positions and instead look for stocks that are weakening or, if your broker supports short-selling, consider selling into the decline.

4. Do Pre-Market Research

Another smart intraday trading tip is to conduct thorough research before selecting a stock. Quality research plays a vital role in this type of stock trading since traders need to make sure the selected stocks show consistent movement during market hours. Read more about what and how to read the markets here. 

To make your research effective, you can follow these steps:

1. Step 1: Identify the index and its overall direction (Nifty 50, Bank Nifty, etc.).
2. Step 2: Look for emerging sectors or industries showing strength or weakness.
3. Step 3: Perform basic fundamental checks (news, results, events).
4. Step 4: Create a list of liquid stocks from these industries.
5. Step 5: Use technical indicators to finalise entry and exit points.

5. Use Simple Chart Patterns

Day traders should opt for stocks that form clear and easy-to-understand patterns on charts, instead of complicated or messy ones. Simple chart patterns help predict possible price movements during the market session, especially for beginners.

A few examples of simple chart patterns are:

• Breakouts: When the stock price moves above a resistance level (signalling a buying opportunity)
• Breakdowns: When the stock price falls below a support level (indicating a selling opportunity).
• Trend (Uptrend/Downtrend): A chart pattern showing Higher highs and higher lows is an uptrend, whereas patterns with Lower highs and lower lows indicate a downtrend.
• Candlestick Patterns: A pattern called “Shooting Star” forms when a bearish reversal occurs at peaks. And the “Hammer” pattern develops when a bullish reversal occurs at the bottom.

For a deeper dive into reading candlestick patterns, Sahi’s guide covers all key formations used by active traders.

6. Analyse Daily Volume and Momentum

Stocks with higher-than-usual trading volume, especially after a specific news release or earnings announcement, often indicate something interesting. It denotes strong market participation in that particular stock.

Such stocks are preferred for intraday trading due to increased momentum and liquidity.

For instance, after releasing the quarterly results by Tata Motors, it opened with significantly higher trading volume than usual. And the stock price starts rising. It indicates strong buying interest. This increased activity can push the price higher during the day, creating a good intraday opportunity.

Tools like VWAP (Volume Weighted Average Price), OBV, and PVT are particularly useful for tracking real-time volume signals on indices and individual stocks.

7. Track Sector Performance

It is one of the crucial intraday trading tips that helps identify where the market momentum lies. If a particular sector (such as banking, solar energy or Information Technology) is performing well, stocks within that sector are more likely to move in the same direction. Focusing on strong sectors can improve your potential of making profitable intraday trades.

A platform like Sahi comes with an auto-trailing ‘Stop Loss’ feature that helps day traders automatically lock in profits and limit potential losses. So, download the app now and start trading!

What to Avoid While Selecting Stocks in Intraday Trading?

According to SEBI, the participation of individual traders, typically from tier-1, tier-2, and tier-3 cities of India, has surged by 3x, 5x, and 10x, respectively, in 2023 compared to 2019.

Such new traders are often prone to the following mistakes while selecting stocks for intraday trading:

Penny Stocks (Too Risky)

Though beginners get attracted to penny stocks due to their low prices, they come with high risks for day traders. These stocks often have low liquidity, which means traders may face difficulty entering or exiting trades quickly.

Apart from that, they are more prone to price manipulation and sudden spikes or crashes. In addition, higher bid-ask spreads can increase trading costs. It means they may look “cheap” at first, but can reduce profit potential at the end of the day.

Low-volume Stocks

Low-volume stocks mean less market participation, lacking sufficient buying and selling activity. This can make it challenging for the intraday traders to enter or exit trades at the desired price.

Such stocks frequently exhibit low liquidity and wider bid-ask spreads due to limited participation from buyers and sellers. This increases overall trading costs. Due to limited participation, price trends may also be unreliable, which makes applying technical analysis harder and managing risk.

Overtrading

Many traders make this mistake, often driven by emotions such as impatience or greed rather than a defined strategy. They execute too many trades without proper analysis. It not only increases transaction costs but also the risk of losses.

For instance, a trader may repeatedly buy and sell shares of Infosys throughout the day without clear signals. Assume some trades are profitable, but there is a high chance of facing frequent small losses. All these can quickly add up with the brokerage charges and can reduce overall profitability.

Trading Without a Stop-loss

It is one of the most critical mistakes an intraday trader can make. Before entering a trade, it is advisable to determine how much loss you can tolerate in intraday trading and the profit you aim to achieve. Having these levels predefined helps prevent emotional decision-making and ensures better risk management. Our guide on trading psychology and risk management goes deeper into building this discipline.

For instance, a day trader buys shares of HDFC Bank Ltd at ₹780 without setting a stop-loss. If the price suddenly drops to ₹730, the trader may hesitate to exit the trade. Most traders generally hope that the price will recover (at this stage). But if the price falls further, the loss continues to increase without a stop-loss.

In contrast, if the trader set a stop-loss at ₹760, the position would automatically close. This would limit the loss and help protect the trader’s capital.

Avoid Emotional Decisions

Making trading decisions out of fear or greed can lead to poor stock selection. Day traders should not chase sudden price spikes or engage in panic-selling during a small dip in the market. It is always advisable to follow a predefined strategy and stay disciplined.

When traders make decisions based on logic rather than emotions, it improves consistency in intraday trading.

The Bottom Line

Intraday trading is a performance-driven approach where stock selection plays a major role. If you do not know how to select a stock for intraday trading, you may miss out on key benefits such as same-day settlement, leverage, higher return potential, and strong liquidity.

Take the next step to elevate your trading journey. Open your Sahi account in minutes and start trading today!

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Stock markets involve risk. Please consult a SEBI-registered advisor before making investment decisions.