So, before diving into the parameters to look at, while selecting a stock for swing trade or intraday trade, we should have a basic understanding of these 2 trading styles.
This trading style is the safest style to trade. Most traders and retail investors follow this style of stock trading. In this style the investor buys a stock and holds it for a short period ranging from anywhere between 1week to 3 months or more, whenever the price is best to square off the position to get maximum profits. This trade uses CNC (Cash and Carry) order type.
This trading style is also very popular and prominent among traders and retail investors. In this kind of trade, you are in agreement with the broker to square off your position on the same day i.e. you save to buy and sell on the same day. This trade uses MIS (Margin intraday square off) order type.
Since we have to complete the transaction in the same day, so the risk increases and the investor should be very confident and clear with his price action strategy i.e. when to enter and when to exit the market.
Now that we are familiar with Intraday trade and Swing trade, then what should an investor look while selecting a share for swing trading and intraday trading?
There should be enough liquidity in the stock. Generally, a thumb rule states that a share which has liquidity of more than 10% is a good share to trade. Now the question is how to calculate share liquidity.
Low Impact Cost
The share should have a low impact cost. This means at any point of time the share should be traded in enough volume so that additional buyers or sellers entering the market does not impact the price too much. This point is again in line with the liquidity point.
Narrow TICK Price
The share should have a narrow tick price. “Tick” is a technical jargon used in the market which refers to the symbol of the share. For example, SIBN is the tick for State Bank of India.
Now narrow tick price means there should be buyers and sellers available in all price points and the prices should be close to each other.
Widespread shareholding pattern
The share should have a widespread shareholding pattern. This means that if a particular section holds a majority of shares, then they can easily manipulate share prices. So promoters, FII’s, DII’s, Mutual funds, retail investors, banks and financial institutions, everyone should hold a healthy amount of share percentage.
For example, if promotor has more than 90% share than promotor can act as an operator and change the price at his will.
Clear chart pattern
The share should have a clear chart pattern. This means that there are clear ups and downs visible in a period.
Sensitive to news
The share should be sensitive to news, again this is in line with the previous point of the clear chart pattern. So if the share is rigid and do not respond to market news very easily, then it is not the stock for intraday trading.
So, if we take these 6 factors in consideration while picking a share for intraday or swing trade, we can minimize our risks substantially and can have better chances to get a profit out of the trade.