Purchasing and selling securities listed in a stock exchange on the same day is known as intraday trading. Selection of Stocks for Intraday Trading: Identify the best intraday stocks while undertaking such investments based on several factors.
Liquidity being the major feature of intraday stocks, consider it, as without this feature such trade would not be possible. Best intraday stocks possess medium to high volatility in price fluctuations. Market value fluctuations more than 3% should be avoided while performing intraday trading as loss is huge in case of an adverse downturn in the stock market. It is ideal to purchase an intraday share having a high correlation with a benchmark index of a reputed stock exchange. Since benchmark indices consist of shares of top companies listed in a stock exchange, it can be assumed that fluctuations will move in an upward direction. Intraday investors can track the trade volume index of a particular security to identify price fluctuations. A higher trade volume index reflects either excessive demand or supply.
The following are the advantages of intrday trading
- The risk of incurring substantial losses are minimized. Whereas the principal is kept locked in for a considerable period, changes in price can be significant, market downturns can be worse in the case of standard trading.
- Stockbrokers charge nominal fees while transacting in intraday trading stocks, as delivery expenses of transferring security are forgone. Stock transaction tax, trade fees, services tax, etc. are all-inclusive in brokerage fees. Brokerage fees on intraday trading stocks are one-tenth of what is levied if standard trading is undertaken.
- By following accurate investment strategies, Capital appreciation in a rising stock market can be achieved easily. In case of adverse market conditions, the method of short selling to earn profits can be used.
- Total financial resources invested can be quickly recovered at any time. It is not blocked through an asset purchase transaction. This preserves the liquidity requirements of an investor to meet any personal needs.
- Investors can profit depending upon the investment strategy in a bullish market by the purchase and sale of securities listed on a stock exchange. If the stock market downturns, profits can be generated through short-selling financial instruments.
Risk Factors
An investor needs to have extensive knowledge about the intricate workings of the stock market for realizing adequate profits. While selecting securities of appropriate companies for which precise analysis of financial records is required to be done. Market volatility plays an important role, technical analysis of markets is based on past volatility, and thereby, might not be 100% accurate in all instances.
Alternative Trading methods
- Individuals can invest in stocks of different companies by standard trading. It is generally undertaken for a more extended period. Investors can profit from both capital appreciation and periodic dividend payments. It should be done through a brokerage firm, wherein the percentages of total profits are deducted as payments. Brokerage fees comprise a small portion of the entire income generation. Brokerage firms provide advice regarding the most profitable investable securities in the market.
- Capital appreciation is the primary target in momentum trading. Investors purchase securities having a high potential for growth in the future, but the prices are suppressed due to market fluctuations. Relative or absolute momentum investment strategies can be implemented, wherein stocks of companies underperforming either in a relative or absolute sense can be chosen.
- Swing trading generates capital gains through short term investment strategies. Volatile stocks are targeted in such cases and procured shares are sold off as soon as a massive movement in prices is witnessed.
Intraday trading can be effective when an investor’s knowledge about the stock market is good. Those who do not possess such extensive information can research online about the same before making such investments.
Smrutirekha Bhoi