InvestorQ : When a stock is already a multi-bagger is it safe to do intraday on such stocks or should they be avoided?
NISHA Nayak made post

When a stock is already a multi-bagger is it safe to do intraday on such stocks or should they be avoided?

Answer
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Dawn Cherian answered.
2 years ago


By themselves, a stock being a multi-bagger or not is too material. What matters more is liquidity and patterns. Liquidity is a critical factor when you are choosing stocks for intraday trading. Liquid stocks are those which are traded in huge volumes. It means that you are able to purchase/sell larger quantities of the stock without having a considerable impact on its price. Even in the case of multi-baggers, avoid stocks that are illiquid. They can typically get you into a buyers trap and then squeeze you with very thin volumes. Usually, there are not enough buyers for illiquid stocks which prevent the traders from placing orders in larger quantities. As compared to illiquid stocks, stocks which are volatile have a tendency of having greater movements in the short run. Basically, the liquidity of the stocks is dependent on the type of trades which a trader places in the market.
One more way to look at intraday trading is via correlation between Stocks and indices. This shows the extent to which the stock is related to the index movement. This can be measured by beta or correlation. Correlation is still better as it measures the impact both ways. Correlation between a stock and the industry or index is yet another factor determining the suitability of a stock. You need to look for those stocks which are highly correlated with the major sectors and indices. It means that when there is an upward movement in the index or the sector, the price of the stock price also rises. Additionally, those stocks which behave as per investor sentiment follow the expected price movement and are found to be reliable. Stocks of information technology companies are dependent on the dollar/rupee movement. A stronger rupee is going to reduce the earnings of the IT companies and results in lowering their stock prices and vice versa. As a result, in the case of high correlation stocks, one can use the index trend to take a trading view on stocks.