Stock Selection For Day Trading In 7 Simple Steps - Intraday Trading Strategies 🔥🔥

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- [Instructor] In this video, I will be showing you
7 simple steps which will help you
in stock selection for Intraday trading and Day trading.
In case you've landed directly on this video,
do start with Part 1 of intraday trading series,
link to all those videos is given
in the description box below, so let's get started.
So before we get started with seven important steps
for stock selection, let me take 30 seconds
to talk about stock universe for day trading
and intraday trading.
The most common mistake by traders
is to track too many stocks in a watchlist.
While this is not wrong watchlist in the beginning
should be limited to no more than 10 to 15 stocks.
As an intraday trader you have to be smart
about sector selection.
You need to divide sectors into primary sectors
and secondary sectors.
As far as I am concerned my primary sectors
are banking and financial services.
And secondary sectors are infrastructure,
realty, metal, auto and energy.
Now primary sectors are those sectors
where you will first look for intraday trades.
If you cannot find one in primary sectors
then switch to the secondary sectors.
Now more often than not your primary sector selection
should be such that you should get
abundant opportunities to trade.
Now unless you narrow down your watchlist,
your learning curve would never reduce.
You need to have a small watchlist of stocks
to understand how you react to price movement
on intraday basis.
This way you will learn a great deal about your watchlist,
about yourself and about the method
you are using to trade on an intraday basis.
Now as you gain experience you can then start
to expand your watchlist as you would then know
which stocks to select and which stocks to ignore.
Keep in mind that getting successful in intraday trading
is a long-term process and don't expect short-term results.
The first step in stock selection for intraday trading
is to check for volumes.
Trading volume can help a trader identify
momentum in a stock and confirm a trend.
If trading volume increases,
price generally moves in the same direction.
That is if a stock is continuing higher in an uptrend,
the volume of the stock should also increase with the trend.
In intraday trading apart from momentum,
volume is used to identify interest
within the traders for the particular stock.
If volumes are high clearly more participants
are interested in the stock,
and if volumes are low this would signal
less interest in the stock and one should avoid it.
Now while volume is a very popular filter
for stock selection in intraday trading,
let me show you how to use this correctly.
Just scanning stocks that are high on volume
is not sufficient, you have to learn
how to spot demand of stock as an instrument.
In the chart in front of you,
there are three volume charts I have posted.
I will be now showing you how to spot those stocks
that are attracting a lot of attention in recent times.
In the first volume chart if you see
you can spot four distinct volume spikes that have happened.
In a normal volume scanner this stock
will show up as a high volume stock
due to the activity that happened few days back.
If you look at the recent times however
the volume is clearly below its 100-day average.
This reflects that while stock attracted
high volumes a few days back,
currently it is not a favorable stock
as interest in the stock is diminishing.
If you spot such volume pattern on a stock,
stay away from that particular instrument.
In the third volume chart you can see that this stock
has had no significant interest from traders.
This clearly reflects that stock is not in favor
and hence it should not be selected for intraday trading.
For identifying if stocks are in demand or not,
you can simply use 100-day moving average
on a standard volume indicator.
So let us now come to the second volume chart.
Now these are the stocks you have to select
for intraday trading where clear interest of traders
is reflected by consistent volume spikes
above the 100-day average of volume.
For a prolonged time interval volumes were clearly
below the 100 days average and then suddenly
volume started spiking above 100-day average.
This is a clear signal that something underneath
is changing and traders are clearly more interested
in this stock in recent times.
This was absent in the remaining two volume charts
that I have posted.
The important point here is to focus on those stocks
that are seeing more buyer's or seller's interest.
In intraday trading you need to be in those instruments
which will fluctuate in the very short term.
This is the only way you can increase your odds
of being profitable.
Volume is thus one such important filter
that will help you focus on the right stocks
at all the times.
In this chart I have used a standard volume indicator
with 100 period moving average on it.
This is available in all technical platforms,
both desktop and web-based.
Second step in stock selection for day trading
is to check for open interest trend.
Now I had covered the importance of open interest
when it comes to futures and stocks.
And if you need to learn about this in detail
then do watch the dedicated video on this.
Link to the same will come up at top end of your screen.
For intraday trading you need to make sure
that open interest is clearly trending up.
If it is not trending as I've marked on the chart,
then just stay away from the stock.
Do not forget that open interest
is a measure of the flow of money into a stock.
Once open interest starts trending it continues to do so
for the remainder of the series.
Now rising open interest represents additional money
coming into the stock, it is generally interpreted
to be an indicator of existing market trend
gaining momentum or extending further.
Now since you are trading on an intraday basis
you can just consider current month's open interest data.
In the last week of expiry however,
take note of the current month and next month data together.
This way expiry week won't distort open interest data.
I hope this particular point is clear.
The third step in stock selection for intraday trading
is to check for volatility.
For measuring volatility here
I am using historical volatility indicator.
Code for tradingview.com
is in the comment section below.
If you cannot find the same just let me know
and I will share it again.
Now as an intraday trader it is imperative
for you to understand the importance of volatility.
If an instrument is volatile you can profit more
as it will move a lot.
If an instrument does not move often,
it would be difficult for you to profit
as movement will be limited.
Now I have posted two charts and let us go through both
to understand what we need to spot in stocks,
we wanna shortlist for intraday trading.
In the first chart volatility is clearly heading lower.
Within this if you try to trade this stock
on an intraday basis, your scope of profit would reduce
as movement will be limited.
If you spot this on a chart then avoid trading
this stock on an intraday basis.
In the second chart if you see volatility
is clearly moving higher.
It surpassed the previous congestion region
and is now on its way up.
These are the stocks you have to target
as these stocks will move more on an intraday basis.
You have to ensure that volatility trend
should be clearly visible and should be on the upside.
By following this simple step,
you will dramatically increase the odds
of being successful in instrument selection.
The fourth step in stock selection for intraday trading
is to check for stocks near 52-week highs and 52-week lows.
If you study all the stocks near 52-week highs or lows,
you will find one thing in common.
And that is stock tends to make more wide-range candles.
Now for an intraday trader this is significant
as movement is what one wants
and such stocks have this in abundance.
For creating an intraday trading watchlist,
always keep a tab on stocks near 52-week highs
or 52-week lows.
This is one of the most effective ways
to be in stocks which will move for sure.
Always remember that a stock
won't be at 52-week high or lows
unless it has extraordinary demand or supply within it.
Now I'll come to more on this in the application section
where we will take up some case studies.
Fifth step in stock selection
for day trading is to check for stocks
that are clearly trending higher or lower.
Now I cannot emphasize this point enough.
Now quite often traders unknowingly select stocks
which are stuck in a range, this should be avoided.
Like we saw with the first three steps,
you have to be in those stocks that are in demand
and trending stocks again represent this.
Now while selecting a stock you need to make sure
it is trending higher or lower
for two to three months at least.
This way you would be in stocks which are already in motion
and have some bit of momentum as well.
Always remember this that if a stock does not move
it will be difficult for you to profit from.
For an intraday trader movement,
trend and momentum is a must.
Now the sixth step in stock selection
for intraday trading is to check for stocks
where demand and supply candles are easily visible.
This is something which should be checked
on a candle volume chart.
Now let me show you what exactly you need to identify.
In the chart in front of you I have taken an example
of Tata Motors as a stock.
For the first half of the last 12 months
there were limited demand and supply candles
visible on the chart.
However, over the last three to four months
demand and supply candles are easily visible
and are in abundance.
This clearly represents that Tata Motors
is in focus as a stock and interest
within this stock is clearly evident.
If you spot a chart which looks similar
to the first half of this chart here,
then let that stock pass.
You have to only focus on those stocks
where demand and candles are clearly visible.
Now this simple step will help you
eliminating 50 to 60% of stocks
from your intraday trading stock watchlist.
Seven step in stock selection for intraday trading
is to check for stocks with clear relative strength trends.
Now relative strength is price of stock
divided by price of benchmark index.
If you are unaware of relative strength as a concept,
refer to the video link that will come up
at top end of your screen,
I have covered this topic in detail.
Now clear relative strengths
on the upside represents stock outperforming
the broader market and relative strengths on the downside
represents stock underperforming the broader market.
If you wanna buy stocks prefer stocks
that are outperforming the market.
And if you are short selling stocks,
prefer stocks that are underperforming the market.
Now since you're trading on an intraday basis
don't try to identify a relative strength
over long periods.
You have to look for relative strength trends
over the last four to five sessions only.
You can also stick to last three sessions
and this would also be fine.
The main idea here is to be with short-term
relative strength trends and not refer
to medium term or long term trend.
Now that we have basic understanding
of the steps involved in selecting stocks
for intraday trading, let me now show you
how I will select couple of stocks for the next two weeks.
I will be selecting banking sector here
and within this sector I have kept six stocks
in the watchlist.
Now I will be showing you how I will select one
to two stocks within this sector,
so that you can understand this
and practice this on your own.
First stock I have taken up is Axis Bank.
Now based on candle volume chart,
some demand and supply is clearly visible
but I would have expected more.
Especially from a stock that is trading
near its 52-week high.
I can also see that in recent times
a relative strength line is sloping downwards.
I would at least want this to be flat
or to be sloping upwards.
I like to begin with these first two steps
and then if stock qualifies based on these steps
I go into further steps.
For now I would pass on Axis Bank.
Second stock I've taken up a State Bank of India.
Now based on candle volume chart alone,
some demand and supply is visible
but one can just spot two such candles.
A relative strength line is again sloping downward
in recent times and this clearly means
that stock is underperforming.
Now this is very similar to Axis Bank
and for me on both these parameters
State Bank of India does not qualify.
Third stock that I've taken up is of Yes Bank.
Now based on candle volume chart,
can't spot too much of interest
in the stock over the short term.
Relative strength line is again sloping downward,
this clearly signifies that stock is underperforming.
Again this is very similar to Axis Bank and SBI,
hence I would again move to the next stock.
One important point to note here
is that more than a relative strength line,
I like to see strong demand and supply candles
over the very short-term.
Fourth stock that I have taken up is Kotak Mahindra Bank.
Now this stock looks positive.
Relative strength line is clearly sloping on the upside
and demand and supply candles are also visible.
I would have still wanted more recent candles
to be strong but I will still shortlist this stock for now
to probe it further on other parameters.
Now since I shortlisted this stock,
let me now bring in more parameters
to see if this stock qualifies further.
Now stock is trading near 52 week high
which is another positive sign.
If you look at the chart it is relatively clean
and is trending higher although momentum
is clearly on the lower side.
If you now look at the volume activity for the stock
it is clearly not supportive.
After a spike seen here in February,
no high volume activity is visible as such.
Since this stock qualifies on some parameters
I will still shortlist this stock for now.
Let me now move to other two remaining stocks
and then we will revert back to Kotak Mahindra bank again.
Fifth stock that I'll take up is ICICI Bank.
Now demand and supply candles are visible here
but I would have still preferred
some strong candles in recent times.
Relative strength line though is showing positive signs
and hence I would like to probe this further
with trend structure and volume activity.
In recent times trending structure within ICICI Bank
is clearly visible and stock
is trading close to 52-week high level.
Volume performance if you see is not encouraging.
After a couple of sessions in the past
where volume activity was high,
current performance of volume is not encouraging at all.
ICICI in some ways is very similar
to what we saw in Kotak Bank.
While relative strength line is up
and stock is near 52-week high,
there is very little interest in the stock in recent times.
I will still keep this in watchlist
along with Kotak Mahindra Bank.
Let us now move to the last stock in this sector.
Sixth stock I will take up is Indus Ind Bank.
The first thing you notice in Indus Ind Bank
is the strong demand and supply candles that are visible.
Among all the banking stocks that we have seen till now
Indus lnd has some consistently strong demand
and supply candles in recent times.
RS line is not encouraging enough,
it is still sloping downward
but let us look at price trend and volume activity.
While price is not near 52 weeks high
price in recent times has still trended higher.
If you look at the volume activity of Indus Ind Bank
again signs are positive as volume is consistently moving
above the 100 period average.
This was something we saw in no other banking sector stock.
If one looks at the open interest trend
and volatility outlook then Indus Ind
seems to qualify here as well.
Open interest is picking up after phases of consolidation
and after a prolonged period of volatility moving lower,
now signs of volatility picking up is clearly evident.
If you look at the price action as well
after prolonged range price has now started moving up again.
This is again a very positive sign.
Out of the seven steps that we have seen,
Indus Ind Bank qualifies on most parameters.
Therefore this is definitely going
to be selected as a valid intraday stock.
Let us now go back to ICICI Bank and Kotak Bank
to see which of these two stocks qualifies
as a valid intraday stock.
Let us first take up ICICI Bank.
Now after some consolidation ICICI Bank
is now again moving up.
Chart structure is relatively clean
and it is trending higher.
Open interest trend if you see is positive as well
and it is seeing a pick up series after series.
Downward volatility cycle has ended
and volatility is making attempts to move high again.
Now while ICICI Bank does not qualify on volume parameters
that is both standard volume and candle volume,
it does qualify on other parameters that we have studied.
Now along with Indu Ind Bank
I would hence select ICICI Bank as well.
Now let me take up Kotak Bank as well.
Now after some consolidation Kotak Bank did move up
but chart is not clean as one would expect.
Now open interest trend is not supportive
and most of the times open interest trend
is flat and is trending down.
Downward volatility cycle has ended
and volatility is now in a range.
Kotak Bank hence does not qualify on clean trending charts,
standard volume, candle volume, open interest
and volatility cycle, hence I would give this stock a pass.
Now these are the seven broad criterias
we saw for selecting stocks for intraday trading.
Out of the six stocks we considered,
I have shown how ICICI Bank
and Indus Ind Bank qualifies for most.
If you look at volumes Indus Ind Bank qualifies
whereas ICICI does not.
When it comes to open interest, volatility,
price, trend and relative strength
both these stocks qualify.
When it comes to recent demand and supply
Indus Ind Bank qualifies
while in the 52-week high, low criteria
only ICICI Bank qualifies.
The key here is to select stocks which qualify
on as many parameters as possible.
If you see I have not included news
and earning seasons for stock selection
and the main reason here is that both these events
eliminate the element of consistency
with which you should select stocks.
It is much better to follow a consistent framework
for entire year than to wait for specific events
where at times one cannot match
the might of institutional traders.
Let me now come to using rollover data
as a filter in stock selection.
In simple terms rollover is carrying forward
a particular month's future positions to the next month.
This is done by closing the existing futures position
for the current month and simultaneously
taking a similar position in the next series.
Ideally traders roll the position in the last week
of the expiry series typically on the expiry day.
Now the important question is
why traders rollover in futures market?
Well there are two main reasons for it,
number one traders expect the current trend
to continue in the near future.
And number two, traders are not willing to book losses
and expect trend to reverse.
In either case if you see movement
is something traders anticipate
and this is where an intraday trader
can benefit a great deal.
Let me now show you
how to use rollover data to shortlist stocks.
The first thing you will require
is to organize rollover data for the last six months.
Let me know in the comment section
if you want some resources on how to get this.
Now once you have this data
look at the current month rollover percentage
and see if it is greater than 10 to 20%
of six month average.
If you indeed spot this then mark those stocks
as high probability stocks for the next series.
So this is a very simple way
where you can use rollover data on your existing watchlist
to identify high probability stocks.
Let me now come to one more bonus step
that is gaps that can be used
as an effective filter for stock selection.
Now bullish gaps form on chart
when there is no trading activity
between high of previous candle and low of current candle.
Bearish gaps form on a chart
when there is no trading activity
between low of previous candle and high of current candle.
Now gaps can be used to shortlist stocks provided
they fulfill most of the criterias laid out
in the seven steps we have seen.
If you skip those criterias,
you would be chasing all stocks which gap up or gap down.
This will reduce odds of profit in intraday trading.
Always remember that you need to eliminate
any form of inconsistency when it comes to stock selection.
This means you will have to do tremendous amount of work
before the market begins.
If you follow a consistent framework to short list stocks
in the long run this will benefit you a great deal.
Now with respect to gap trading I will be covering
more on this when I start the intraday strategy section
from the next part.
I will now show you how to use pre-market time
to select stocks and I will also clear
some of the misconceptions associated with it.
Let me now come to pre-market timings
and some of the misconceptions associated with this.
Now pre market does not mean time
between 9:00 a.m and 9:15 a.m.
Pre-market means the time you have
before market opens the next day
and next week when it comes to weekend.
This is where you will do
maximum amount of research and hard work.
You need to focus on having a tremendous work ethic
to analyze stocks with respect to intraday trading
way before the market opens.
This is something most traders don't realize.
Once trading day starts during pre-market
target only those stocks which show price
and volume movement and which are in your watchlist.
Let other stocks pass.
Now your success in intraday
depends on what you do hours before the market opens.
Therefore focus on these seven steps and guidelines
to do all the required works so that you are ready next day
with a clear actionable plan.
So kindly consider hitting the like button
and sharing this video if you find the content useful.
Thanks a lot for watching this video guys,
take care and be safe.

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Stock Selection For Day Trading In 7 Simple Steps - Intraday Trading Strategies 🔥🔥

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