Selecting intraday stock for better profits
Before trading or investing in stocks, stock selection is the first and foremost important step.
Before trading or investing in stocks, stock selection is the first and foremost important step. Primarily profit or loss depends on stock selection.
Stock selection is the heart of trading. Let us delve into the subject of how to select stocks.
Generally, markets are either trending or range bound. In a trending market price movement is either upward or downward. So, we refrain ourselves from investing in range bound stocks. Then one can select stocks based on indicators.
One such indicator is the moving average. When using moving averages, we generally identify crossovers as the signal for an either upward or downward movement. Most commonly used crossover are 5/8,8/13,5/ 13,10/21 etc.
Usually a smaller and longer moving average curve is plotted to generate signals for trade. In the above statement the numerical digits imply the number of days. Those who invest for long-term consider 21/50 or even 50/200.
Sometimes moving averages may end you in losses because this is a lagging indicator. So, instead of relying on one indicator and making a choice of stock selection it is better to couple it with few more indicators.
But, moving average definitely works well in a trending market.
Relative strength index is another indicator which would aid in stock selection. Usually if RSI is above 70 it comes under overbought category and is a signal for sell.
Likewise, if RSI is above 30 it generates a buy signal. Similarly, once we get a signal in RSI, we need to get a reconfirmation with another indicator like MACD which is known as moving average convergence and divergence.
Another method of selecting stocks is by analysing the candlestick patterns. For instance, when we see a bullish hammer, we can expect an increase in the price of a stock.
Contrary to this an inverted hammer candle indicates an upward movement of price. A hanging man candle is suggestive of fall in price.
Support and resistance also help in stock selection. For example, if the price of a stock is at the support level or if it has fallen below the support level then it is clearly indicative that the price would still fall and so we can see a selling opportunity here.
There are still several other strategies which we will try to analyse in future.
(The author is a homemaker who dabbles in stock market investments in free time)