12 Rules for Picking Stocks in Intraday Trading

A Guide to Selecting Profitable Day Trading Stocks

Reviewed by Samantha Silberstein
Fact checked by Jiwon Ma

While the market offers thousands of options, not all stocks are created equal for intraday trading. The most successful day traders know that being able to choose the right stocks—those with the right blend of volatility, liquidity, and market attention—means the difference between consistent profits and frustrating losses.

For some successful traders, that might mean finding a range of stocks they can trade quickly to build up tiny profits. For others, being incredibly selective about their entries is key. They might only make two to three trades per day, but each one aligns perfectly with their strategy and their criteria for risk. This guide will give you the rules successful traders use to identify and trade the stocks that align with their day trading strategies.

Key Takeaways

• Day traders seek profits by monitoring real-time market data and identifying clear trending patterns.
• Strategically selecting stocks is crucial for day trading success—focus on those with high liquidity, optimal volatility, and correlate strongly with the overall sector or market.
• Managing your risks through proper position sizing and strategic exit points is essential for sustainable day trading success.
• Understanding market psychology and sector movements can help traders spot the most promising prospects.

Rule No. 1: Understand the Basics of Intraday Trading

The digital age has vastly increased access to market data, with platforms like TD Ameritrade, E*TRADE, and Webull offering sophisticated real-time trading information that was once available only to professional traders. But having access to data is just the beginning—knowing how to interpret this information and select the right stocks is what separates successful day traders from the vast majority of day traders who aren’t.

Three critical factors should guide your stock selection:

1. Liquidity is paramount. High-volume stocks allow you to enter and exit positions quickly without significantly affecting the price—a crucial advantage when timing is everything.
2. Look for stocks with the right amount of volatility—enough movement to create profit opportunities, but not so much that the risks become unmanageable.
3. Finally, consider how your chosen stocks move in relation to their sectors and the broader market, as this correlation can help you spot and capitalize on emerging trends.

A strategic approach to selecting stocks combines these factors with careful analysis of market conditions and robust risk management practices. We’ll expand on some of these points below.

Rule No. 2: Master Key Day Trading Strategies

There are several strategies that day traders use to profit from their activities. The techniques include the following:

• Scalping: This entails taking advantage of small price movements by having several positions during stock market trading. The goal is to accumulate a bunch of small profits over time.
• Momentum trading: Day traders identify stocks that are trending up or down and will ride that consistent price move over the day, hour, or even minute. Day traders assume that the momentum will continue, allowing them to profit.
• Breakout trading: This involves looking at stocks that are trading within a range and entering a position when it is assumed that the range that the stock is trading in is no longer maintained.
• Trend trading: This approach entails the use of moving averages, momentum indicators, trend lines, and chart patterns to determine whether the stock will continue to go higher or lower. The day trader will trade in the same direction of the trend until the trend reverses.
• Contrarian trading: Day traders also apply contrarian investing techniques to intraday trading. This involves taking a position that is opposite to the prevailing market sentiment. For example, if the current market sentiment is bearish, the day trader will be monitoring to buy stocks. Conversely, if the current market sentiment is bullish, the day trader will be monitoring to sell stocks short.
• News trading: This involves analyzing financial and economic calendars and determining what news and events will affect a stock’s price. The day trader will then trade the respective stocks before, during, and after the news or event.

Rule No. 3: Follow Core Stock Selection Criteria

Finding the right stocks for day trading isn’t about picking “hot tips”—it’s about identifying stocks with specific characteristics that make them suitable for quick trades. You’ll want to have your strategies in place for entries and exists: Here are the key factors to consider:

Rule No. 4: Track Market Leaders and Laggards

Look for stocks that move more dramatically than the major indexes like the S&P 500 or Nasdaq. For example, if the S&P 500 rises 1%, focus on stocks climbing 2% or more. These “market leaders” typically offer better profit potential because they show more strength than the overall market.

Rule No. 5: Know When To Exit With Your Gains

Day traders have limited time to capture profits and must spend as little time as possible in trades that are losing money or moving in the wrong direction.

Here are two simple guidelines that can be used to take profits when trading with trends:

• In an uptrend or long position, take profits at or slightly above the former price high in the current trend.
• In a downtrend or short position, take profits at or slightly below the former price low in the current trend.

In the chart below, entries and exits are marked. The chart shows that, as the trend continues higher, the price pushes through past highs. This provides an exit for each respective long position taken. The same method can be applied to downtrends: profits are taken at or slightly below the prior price low in the trend.

Rule No. 6: Prioritize High-Volume Stocks

Look for stocks that trade at least 1 million shares per day. High trading volume means you can buy and sell quickly without dramatically affecting the price.

Rule No. 7: Master Downside Trading Techniques

When markets are falling, focus on stocks dropping faster than the overall market. These “weak” stocks tend to bounce less during brief market recoveries, making them prime candidates for short-selling. However, short-selling carries significant risks and isn’t recommended for beginners.

When entering a long position, buy after the price moves down toward the trend line and then moves back higher. To draw an upward trend line, a price low and then a higher price low is needed. The line is drawn connecting these two points and then extended out to the right. On the chart below, the price bounces off the trend line a couple of times before the price falls through it the third time. 

Rule No. 8: Capitalize on Upward Momentum

During market rallies, target stocks showing the most aggressive upward movement compared with the broader market. The best candidates are those that barely dip when the market pulls back. This resilience often indicates institutional investors are accumulating the stock, which can lead to sustained upward moves.

The stocks and exchange-traded funds (ETFs) that are stronger or weaker than the market may change daily, although specific sectors may be relatively strong or weak for weeks.

The following chart compares the SPDR S&P 500 to the Technology Select Sector SPDR Fund (XLK). The blue line, XLK, was relatively strong compared with SPY. Both ETFs moved higher throughout the day, but because XLK had such large gains on rallies and slightly smaller declines on pullbacks, it was a market leader and outperformed SPY on a relative basis.

Rule #9: Act on the Best Volatility Levels

You want stocks that move enough to create profit opportunities but not so wildly that they become unpredictable. Stocks with more volatility can offer bigger profits but also carry more risk. A good rule of thumb is to look for stocks that typically move 3% to 5% per day.

It can be hard for many traders to alternate between trend trading and range trading. Therefore, many traders opt to do one or the other. If trend trading, step aside when markets are ranging and focus on trading stocks or ETFs that tend to trend. When range trading, avoid trading during trends and focus on trading stocks or ETFs that tend to range.

Rule No. 10: Know Trend-Following Techniques

Many successful day traders focus on stocks that move in tandem with their sector or the broader market. This means that, when the index or the sector ticks upward, the individual stock’s price also increases. This is important if the trader wants to be trading the strongest or weakest stocks every day. If a trader opts to trade the same stock every day, it is wise to focus on that one stock; there is no need to worry about whether it is correlated with anything else.

Below is a table that helps you with the correlations among different sectors and assets:

In addition, some look at the trend and then focus on specific sectors. For example, when tech stocks are rising, you might look for individual securities in the sector moving even higher than their peers. This makes it easier to spot and capitalize on trends.

Intraday trends don’t continue indefinitely, but one or two trades (or sometimes more) can be made before a reversal occurs. When the dominant trend shifts, begin trading with the new trend.

Isolating the trend can be the difficult part. Trend lines provide a simple and useful entry and stop-loss strategy. The following historical chart of the SPDR S&P 500 (SPY) shows several short-term trends during a typical day.

Warning

When volatility spikes, you can generate above-average profits, but you also face a greater risk of losing more capital in a relatively shorter period of time.

Rule No. 11: Know When To Take a Pause

Markets don’t always trend. Sometimes, intraday trends reverse so often that an overriding direction is hard to show. If major highs and lows aren’t being made, ensure the intraday movements are large enough for the potential reward to exceed the risk. For example, if risking 10 cents per share, the stock or ETF should be moving enough to give you at least 15 cents to 20 cents in profit using the guidelines above.

If the price is moving in a range (not trending), switch to a range-bound trading strategy. During a range, our drawn lines will be horizontal, not angled. However, the same general concepts apply: Buy when the price moves to the lower horizontal area, support, and then start moving higher. Short sell when the price reaches the upper horizontal line, resistance, and moves lower again.

When buying as a day trader, look to exit near the top of the range but not right at the top. When shorting, look to exit in the lower portion of the range but not right at the bottom. The potential reward should always be greater than the risk.

Place a stop-loss just below the most recent low before entry on a buy signal or just above the most recent high before entry on a short signal.

Rule No. 12: Know How To Assess Stock Liquidity

The depth and liquidity of a stock are essential for day traders. There are several techniques to determine stock depth and liquidity:

• Trading volume: Day traders use the amounts of shares traded to determine a stock’s depth and liquidity. A higher trading volume shows that there are more market participants, which increases the likelihood of entering and exiting a stock position. Below are some metrics for assessing the depth of trading volume.

• Bid-ask spread: This is simply the difference between the price that market participants are willing to buy and sell a stock. A tighter or narrower bid-ask spread signifies that the stock is more liquid. Meanwhile, a wider bid-ask spread indicates that the stock is less liquid.
• Order book: This tool provides all the buy and sell orders for a particular stock. By analyzing the order book, the day trader can learn more about the stock’s liquidity, depth, and overall supply and demand.
• Time and sales: This tool shows the price and volume of every trade executed for a stock. Like the order book, the time and sales tool gives the day trader extra insights into the stock’s liquidity, depth, and overall supply and demand.

• Market depth: The phrase “market depth” refers to a market’s ability to absorb large amounts of orders. In the case of a stock market, a market depth report shows the number of shares available at each price level in the order book. A high level of market depth indicates that the stock is very liquid.

How Do Day Traders Determine the Correlation of a Stock?

The correlation of a stock estimates the proportion at which a stock moves in line with another stock or even a stock market index. A stock’s correlation is determined by the following: correlation coefficient, scatter plot, rolling correlation, and regression analysis.

How Do Day Traders Figure Out Where to Exit Winning and Losing Positions?

Day traders think it critical to determine when to exit winning and losing positions. This is done through deciding the stop-loss and profit-taking levels. Day traders use various techniques for figuring out these levels, including: technical analysis, volatility, the risk-reward ratio, and the average true range.

How Can I Get Better at Day Trading?

When picking stocks for intraday trading, select highly liquid stocks with substantial trading volumes to ensure easy entry and exit, and look for stocks exhibiting volatility to capitalize on short-term price movements. Additionally, use technical analysis to identify clear patterns and trends, and stay updated on relevant news that might influence stock prices.

What Is the Biggest Risk When Intraday Trading?

The biggest risk in intraday trading is the potential for significant financial losses. You may be stuck with a security you don’t want or at least stuck with it at a price you don’t want. In addition, high transaction costs from frequent trading will eat into your profits.

The Bottom Line

Identifying the right stocks for intraday trading involves isolating the current market trend from the surrounding noise. Then, a trader’s task is to capitalize on that trend. Specific characteristics of a stock—liquidity, volatility, and correlation—characterize the best prospects. But it’s also important to have the right entry and exit strategies—not just the right asset.

Studying trend lines and charting price waves can aid in this endeavor. There are many ways to trade, but none of them works all the time. If the conditions don’t provide a suitable environment for deploying your strategies, save your money and wait for when they are.