How to Do Stock Selection for Intraday Trading

Picture this: You’re sitting in front of your trading platform, watching the charts fluctuate in real-time. The clock is ticking, and you know one thing: you’ve got a few hours to make the right decisions. Intraday trading is fast-paced, nerve-wracking, and potentially lucrative—but only if you know how to pick the right stocks. How do you do that? What’s the secret sauce to stock selection for intraday trading?

Most traders fail because they don’t start with the right foundation. Instead of obsessing over countless stocks, you need to narrow your focus. The key is to understand the movements, volume, and volatility of certain stocks. Intraday trading is all about speed, and without a clear system, the market will eat you alive. But fear not. We’re about to dive deep into the strategy that seasoned traders use to identify those stocks that have the potential for high returns within the span of a single day.

Step 1: Understanding Volatility

Volatility is your best friend in intraday trading. You need stocks that move. Flat stocks won’t make you money. Look for stocks with at least a 3% to 5% price movement within the day. High volatility stocks are often those linked to significant news—earnings reports, new product launches, or management shake-ups.

One way to identify these stocks is by scanning the pre-market trading sessions. Stocks that are already showing significant movement in pre-market hours are likely to continue being volatile once the regular session begins.

Step 2: Liquidity is King

You could find the most volatile stock in the market, but if it’s thinly traded, you’re in trouble. Liquidity is the second pillar of stock selection for intraday trading. Liquidity refers to the ease with which you can buy or sell a stock without affecting its price. If a stock is too illiquid, large orders will create slippage and make it difficult to exit positions without losing significant value.

Look for stocks that trade at least a few million shares daily. Stocks like Apple (AAPL) or Tesla (TSLA) have high volumes, ensuring you can enter and exit positions with ease.

Step 3: The Power of Relative Strength Index (RSI)

Technical analysis tools are essential for intraday stock selection. The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. It ranges from 0 to 100 and can help you understand if a stock is overbought or oversold.

Stocks with an RSI below 30 are often considered oversold and could be primed for a bounce-back. Stocks with an RSI above 70 are typically overbought, which may lead to a price pullback. By combining RSI with other indicators, you can refine your stock picks for the day.

Step 4: Keeping an Eye on News and Events

When it comes to stock selection for intraday trading, news is your best friend. Earnings reports, new product launches, or geopolitical events can dramatically influence a stock's performance within hours. Using real-time news platforms like Bloomberg or Reuters can give you a competitive edge.

For instance, stocks that are linked to breaking news are more likely to see sharp price movements, giving you the volatility and trading opportunities you need. But remember: reacting quickly is key, as these moves tend to happen fast.

Step 5: Sector Analysis

Some days, the entire market may be trending in a particular direction. However, specific sectors can show strength or weakness, which could indicate better opportunities for intraday traders. For example, if the tech sector is up for the day, look for stocks like Apple, Microsoft, or Nvidia to capitalize on the trend.

Conversely, if the market is experiencing a sell-off, finding sectors that are less impacted by broader market movements—like utilities or consumer staples—could help protect your capital.

Step 6: The Importance of Time Frames

In intraday trading, time is everything. Identifying the best time frames for entry and exit points is crucial. Most traders use shorter time frames like 5-minute, 15-minute, or 1-hour charts to make decisions. These time frames provide quick insights into short-term price action.

However, there’s no one-size-fits-all. Some traders prefer a combination of different time frames. For instance, using the 1-hour chart for trend analysis and the 5-minute chart for precise entries and exits could help you make more informed decisions.

Step 7: Pre-Market and After-Hours Trading

While most trading happens between 9:30 AM and 4:00 PM EST, don’t ignore pre-market and after-hours trading. Stocks that experience large moves outside of normal market hours are likely to continue that trend when regular trading begins. Platforms like Nasdaq or CNBC offer pre-market data that can give you clues about which stocks might be worth watching once the market opens.

Step 8: Risk Management

It’s tempting to go all-in on a volatile stock, but risk management is what keeps you in the game. The 1% rule is popular among intraday traders: never risk more than 1% of your total capital on a single trade. This ensures that even if the trade goes against you, you’ll still have plenty of capital to continue trading.

Additionally, always set a stop-loss. A stop-loss is your exit point if a stock moves against you. For example, if you enter a trade at $50, you might set a stop-loss at $48 to limit your losses.

Step 9: Building a Watchlist

Your watchlist is your arsenal. You should have a list of 5 to 10 stocks that meet your volatility, liquidity, and sector criteria. Some traders build their watchlists the night before based on news and earnings reports, while others update their lists in real-time during the trading day.

Common tools like Finviz or TradingView offer stock screeners that can help you filter stocks based on criteria like volume, volatility, and price action.

Step 10: Utilizing Automated Trading Tools

Automation is becoming more popular in intraday trading. Tools like algorithms and trading bots can execute trades faster than any human could. While these systems aren’t foolproof, they can assist in quickly identifying and acting on trading opportunities.

But don’t rely solely on automation—understanding the market and your strategy is still key.

Conclusion: Intraday trading is not for the faint-hearted. The fast pace and potential for large gains—or losses—make it a challenging but rewarding endeavor. The key to success lies in selecting the right stocks using the methods described above. With proper research, a solid watchlist, and strict risk management, you can put yourself in a position to profit from the daily ebbs and flows of the market.