The Hindu Business Line : Trader's Corner

There are over 8000 stocks listed in various Indian stock exchanges. This should actually translate into a mind-whirring array of choice for a day trader in India. It is next to impossible to scan through all the 8000+ charts every morning to pinpoint the stock that would hit the jackpot that day.

There are ways to circumvent this difficulty and to make the process of stock selection simpler. This process can be stated in three steps:

Identify the trend in the market as a whole.

Identify the sectors that are in the same trend as the market.

Identify the stocks in that sector that are the best candidates for day trading.

To elucidate, the chart of the Sensex and the Nifty should be analysed first to identify if the market is in an upward or downward trend. If the market is trending up/down, focus on sectors that are in an uptrend/downtrend. If you have identified cement as a sector that is moving up, then scan the charts of all the cement companies and zero in on one or two stocks that have reinforcing chart patterns.

There are a few factors to be taken into account while picking the stock for trading. These are liquidity, popularity volatility and familiarity. Day trading in illiquid stocks is a big no-no as exit at the right price is difficult on these counters even on normal days.

Liquidity is a function of popularity. Then, there are some stocks that enjoy popularity for a brief period before fading into oblivion. As the day trader's horizon is short, stocks from both the categories are equally favoured. Volatility is another preferred trait in day-trading stocks. How can anyone day trade in stocks that go through the trading session in a comatose fashion, scarcely moving half a per cent?

Familiarity with stocks can increase the day-trading success rate greatly. If a trader is watching the RIL stock day after day, it is sometimes, inexplicably, possible to sense when the stock is going to make a major move. Long-term relationship!

Ad-hoc stock selection based on news flows can work sometimes, but it is best avoided, as it leads to influx of emotion into day trading. Event-based trading similar to the pre-budget trading and results-oriented trading are not advisable as these trades are based on pure conjectures and have no technical or fundamental basis.

Lokeshwarri S. K.

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