It's a great question and very few focus on stock selection for trading. Many do not use any criteria for selecting a stock for trading. They simply start trading based on what others are trading or a stock that's going up. There's hardly any basis for stock selection for trading.
Therefore, it would be a good idea to set a few ground rules for stock selection as far as trading is concerned.
- First of all, do not select the stocks which are worthy of investment. For trading you need different kind of stocks.
- For trading, you should not select stocks which are in either secular uptrend or outright downtrend. The reason is that you want to buy and sell them again and again which is not possible in the case of stocks which are going in only one direction.
- So you need stocks which are in a trading range. Take the case of SBI. For the past one year or more, it is stuck in a trading range of 250 of 320. So you can trade SBI between these two price points. Buy at 250 and sell around 100. Repeat.
- The other ground rule is that it has to be a fundamentally sound stock because it should come back after it breaks down. Stocks like Kwality and RCom can make your cry after they break and don't come back to the levels from where you buy them.
- How to find out where to buy and sell? Use technical analysis. Study the chart and identify the support and resistance levels. Buy near support and sell near resistance. If it continues to remain a trading range for some time. You can make a lot of money following this strategy.