How to select stocks for day trading or short term swing trading?



How to select stocks for day trading or short term swing trading?

Whenever trader thinks of selecting a stock for day trading he needs to keep following 4 aspects in mind:

  • Liquidity
  • Volatility
  • Bid/Ask price difference
  • Relative strength of the stock

Day traders, especially scalpers, need good liquidity and selection of stock is very critical for them.Many a times they may have to execute market orders and trading in less liquid stocks will be of high disadvantage to them as their market order in less liquid stocks may move the stock price against them which leads to unfavourable entry or exit. So always select a stock which is highly liquid. Most of the blue chip stocks and stocks that are actively traded in Futures and Options meet this criteria

Traders thrive on volatility and less volatile stocks lacks action to make money. So always select stock that has decent volatility.

Don’t trade in a stock which are in low price band. In Indian market context anything below 30 rupees should be avoided, even though they have high liquidity.To be on safer side its better to avoid stocks which are below 50 rupees This is because the bid/ask price difference might be high which will not give traders favourable entry and exit.

Always select stocks which are relatively strong compared to other stocks in the sector for going long and relatively weak compared to other stocks in that particular sector to go short. This will increase the probability of success. For example if the trader feel that Bank Nifty is weak then he can short the weakest stock in Bank Nifty

There are many more criteria which traders can add for stock selection based on their trading methodology and risk tolerance


People who are into automated trading can code a simple program which can filter the stocks as per their criteria. Couple of points which are important :

  • Enough historical data to study the behaviour of the concerned security
  • Their trading system is in sync with the behaviour of the security

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