To select a trading stock in India, we need to check several parameters. In the article we will know in details. Without using these parameters you could stuck and that stock and could get a huge loss, therefore as a trader you must select your trading stocks based on these parameters.
How to select trading stocks in India
Here are the parameters to select a stock for Trading purpose , either you are an Intraday trader or positional trader.
To select a trading stocks in India for trading purpose liquidity is the very important parameters. If you select a stock which is not enough liquid then you can stuck in that stock. What is liquidity, in simple words liquidity means the number of buyers and sellers. For example on your trading platform when you will check the market depth of a stock then you will find the difference of buyer and seller. For a liquid stock you will check huge buyers and seller with each tick.
Let’s take an example of SBI share , when you will open the market depth of it, then you will find the buyer and seller are available on each tick , means if the suppose if the SBI share price is trading at 560 level, then you will notice, the bid side 559.90, 559.80, 559.70, 559.60, 559.50 so on price are available, which means buyers are available to buy this share at each price, similarly on offer side you find 560, 560.10, 560.20, 560.30, 560.40, 560.50 so on, means sellers are also available to sell at each price tick.
In that case if you want to sell your SBI share then you could easily sell it near your price range. Or if you want to buy that share at certain price then you can easily buy.
Risk with low liquid share
Now lets’ take an example of a low liquid share suppose there is a share with name XYZ, and which is trading at the price of 600. Now when you will check the market depth of that share then you will find if the offer side is 600 then on bid side it will be 590, 580, 570 etc. which means if you want to sell your share at the price of 600 then there is no buyer at 600 , there if you place and order of 600 then you share will not sold out, until any buyer not put a bid of 600, on the other side if you place an market order then your share would be sold at the price of 590, because the difference between buyer and seller is around 10 rupees, so you will have direct loss of 10 rupees.
Avoid trading low liquid penny stocks
Most of the traders lose their money because of buying low liquid penny , stock in most of the penny stocks, when you buy the share and next time when you will try to sell then you will not find a single buyer, in that case you will stuck with that share.
Therefore you must choose a liquid share where you could frequently buy and sell that share.
Low volatile stock
To select trading stocks in India, the second parameter is the volatility of the stock, suppose you have selected a stock for intraday trading and share overall movement of entire day is 1 to 1.50%, and when you got a move of 1% then you entered in the stock, then stock freeze at that price because the share day range is only 1%, then how will you make profit.
An Intraday trader only makes profit when the share shows some movement. If the share doesn’t not move then it is very difficult to make profit, therefore avoid those stock who have low volatility.
High volatile stock
As an intraday trader you should also avoid the stock with high volatility, suppose you buy a stock at certain price and stock goes up 3%, and sudden the stock fall 4%, and within next time of period again stock jumps 5%. In such types of stock you will lose more than earnings, because each time your stop loss will be trigger. Therefore it would be better to avoid these types of stocks from your trading list.
According to my own opinion to select a trading stock in India, the share price is the next important parameter. I only prefer to choose a share with price more than INR 500, in that case when I trade in equity.
Les’s understand it with an example, suppose you have selected a stock with price of 100 rupees and you got 3% rally in the stock in terms of number that is only 3 points, therefore how will you trade that stock in such a narrow range, most of the trader do , but in my case I don’t prefer those stock specially for intraday trading , but for positional trading you can trade that stock.
List of liquids trading stocks in India
To select a trading stocks you can choose the stocks from Nifty50, all these stocks are highly liquid. You could also choose the stocks from Future & Options segment. But in F&O segment you need to first check the Market depth section, and especially when you trade on options, then you must check the options of that stock is enough liquid or not, otherwise you will be in huge loss.
Here is the end of the article How to select trading stocks in India, hope you enjoyed the article and got some value from it. Please share your vies below in comment section.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at email@example.com.