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How to select best stocks for trading?

If you are looking to make some quick money in the financial markets, trading can be a very convenient option. It can be risky at times, but if done properly can be very profitable. Traders all around the world have made significant amounts of money by trading in the stock market. If you are an amateur investor, this post should give you an idea about how to select right stocks for trading. We will look into basics of stock trading, tips to choose the right stocks for trading and how to start stock trading online.

Key Points

  • If you are looking to make some quick money in the financial markets, trading can be a very convenient option.
  • Liquidity is the most important trading tip while choosing the right stocks for trading.
  • During a bull run, you should watch for stocks which have a potential to rise.

Stock Trading Basics

A company is listed in the stock market when it completes theprocess of initial public offerings (IPO). After the process of IPO, its shares ‘become public’, and you can place buy and sell orders on them as an individual. This process of buying and selling of a stock in the stock market is called trading. For successfully trading in a stock market, you need to have a strategic plan. There is some difference between trading and investing. Investing refers to buying stocks and staying invested in them for a long time whereas in case of trading you book your profit as soon as the stock prices go up.

Tips to choose the right stocks for trading:

  1. Trade in liquid stocks: Liquidity is the most important trading tip while choosing the right stocks for trading. Liquid stocks have too many buyers and sellers, whereas lesser liquid stocks do not provide you the opportunity to buy and sell larger quantities due to lack of traders. When you buy illiquid stock, you may not find buyers when you decide to book your profits.
  2. Stay away from volatile stocks: High volatility can be a bad news for you because it can move in an unpredictable way. You can lose a lot of money if these stocks move in the wrong direction. These stocks mostly have low daily trading volumes, making them illiquid. These stocks are mostly from the low-cap category and some are from the mid-cap category.
  3. Trade in good correlation stocks: One of the most important tips for you to select the right stocks for trading is to find good correlations stocks. You should trade in stocks which have a higher correlation with major sectors and indices. This will help you because when the index will see an upward movement, your stock’s price will also rise.
  4. Follow the trend: Moving with the trend is always beneficial for you in terms of trading. During a bull run, you should watch for stocks which have a potential to rise.
  5. Do some research: Nothing can replace research in the stock market, be it technical or fundamental analysis. Undertaking quality research is always going to help you while you are trading. You can start by identifying the index that can rise and then hone in on the sectors that are of interest to you and your financial goals. Then, you can create a list of several stocks related with these sectors.

Start stock trading online:

The steps you should follow before you trade online are:

  • Get a PAN card: A PAN card is must for you for any financial transaction in India. PAN is required for opening a bank account, investing in the stock market and mutual funds, filing Income Tax returns etc.
  • Get a broker: You are not allowed to go directly to a stock exchange and trade in the stock market. Get yourself a stock broker.
  • Open a demat and a trading account: You are allowed to trade in the stock market only through demat and trading accounts. You must open a demat account and a trading account before you can invest in Indian stock market.
  • Research and Choose Stock: Perform value research, technical analysis, try identifying patterns, understand short selling etc.
  • Trade: Now you can start trading in the stock market by just being in contact with your broker and giving buy and sell orders.
Wrapping Up

  • Research is integral. A primary step before selecting your broker or even picking out your favorite stocks.
  • Get yourself a good broker as brokerage rate can eat up most of your profit when it’s high.
  • Be in touch with your broker to start trading after you decide which stocks you want to buy. Follow the tips mentioned here before you start trading.
Disclaimer: These ideas should not in any way be considered as advisory in nature. Users discretion is required based on their own investment goals and risk appetite.
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