Search Shares for Trading and Generate Passive Income
How to Search for Shares for Trading and Generate Passive Income
Successful trading in the stock market hinges on effective stock selection. Many traders come to this realization after experiencing losses, often leading them to exit the market within 5 to 8 months. The process of choosing stocks for trading is a decisive factor in sustaining and growing your portfolio. If you aim to generate passive income, it is crucial to understand how to search for shares effectively and the reasons behind selecting a particular stock.
This article explores professional and methodical approaches to searching for shares for trading, offering insights that can guide both new and experienced investors.
Search Shares for Trading and Generate Passive Income
How Normal Investors Generally Search Shares for Trading and Generate Passive Income.
Most investors follow intuitive or reactionary methods to select stocks:
Following Trends Without Understanding: Many invest in stocks simply because they’re on the rise, without knowing the reason behind the trend.
Relying on Unverified Sources: Normal investors often depend on social platforms or tips from unknown sources, ignoring the need for verifying the information.
Late Research: A common investor starts researching after investing, rather than planning and researching beforehand.
Professional traders, however, plan and execute trades strategically, leveraging a trading plan. Below, we discuss how professionals approach stock selection for trading.
Trading Plan for Master & Profitable Traders
Professional traders trade with a plan. Their success comes from thorough research and sticking to a well-crafted trading plan. Stock selection forms the foundation of this plan, making it easier to monitor price movements, whether in intraday trading, swing trading, scalping, or position trading. Here’s a breakdown of five professional methods to search for shares and generate passive income.
1. Most Active Search Shares for Trading and Generate Passive Income.
Definition: The stocks with the highest trading volume throughout the day are considered the most active stocks.
Importance:
High trading volumes indicate strong market interest.
They are often liquid, making them suitable for quick trades.
How to Find:
Visit websites like NSE, Money Control, or Investing.com to identify these stocks.
Analyze the trade volume patterns to decide entry and exit points.
Example: Suppose XYZ stock is among the most active stocks, with a trading volume of 5 million shares. By analyzing the intraday volume and price movement, you can decide whether it’s a suitable candidate for short-term trades.
2. Trending Stocks
Definition: Stocks that consistently trade with high volumes and attract market attention are called trending stocks.
Importance:
Sudden changes in volume can indicate emerging trends.
Trending stocks often reflect market sentiment, making them valuable for intraday and swing trading.
How to Use:
Monitor platforms that showcase trending stocks.
Identify if the trend aligns with broader market movements or specific news.
Example: Trending stocks like ABC Ltd. may see a 10% price surge due to favorable government policy announcements. Such stocks become prime candidates for traders looking to capitalize on short-term volatility.
3. Top Gainers and Losers
Definition: Stocks that have experienced the largest percentage increase or decrease during a trading session.
Importance:
Top gainers reflect strong momentum and positive market sentiment.
Top losers can present buying opportunities if the decline is temporary or exaggerated.
How to Use:
Use platforms like NSE or Money Control to identify top gainers and losers.
Analyze the reasons behind the movement—news, sectoral performance, or market trends.
Example: A top gainer stock like DEF Ltd. has risen 15% in a day due to robust quarterly results, making it attractive for momentum traders. Conversely, a top loser like GHI Ltd., which fell 10% due to temporary market panic, might be an opportunity for value investors.
4. Sector-Wise Scan Shares, Trading and Generate Passive Income.
Definition: Analyzing performance based on sectors, such as IT, banking, or pharmaceuticals.
Importance:
Helps in identifying outperforming or underperforming sectors.
Sectoral trends often drive individual stock performance.
How to Use:
Look for sectors that are driving the Nifty or Sensex movements.
Pick stocks from sectors showing strong upward or downward momentum.
Example: If the IT sector shows a 3% rise due to global demand for software exports, stocks like INFY or TCS become appealing for short-term trades.
5. Heat Maps
Definition: Visual tools that represent stock prices, trading volumes, or trends using color codes.
Importance:
Simplifies complex data into actionable insights.
Helps quickly identify patterns or anomalies in the market.
How to Use:
Use heat maps available on financial platforms.
Focus on clusters of strong performance or declines to make informed trading decisions.
Example: A heat map shows that the majority of energy sector stocks are green, indicating bullish sentiment. This insight can guide you to focus on stocks like RELIANCE or ONGC for potential trades.
Advanced Strategy: Closing Hour Trades
An effective strategy involves tracking the Nifty 50 stocks that have fallen the most during the day. Buying these stocks 15 minutes before the market closes often yields gains the following day, as market corrections or rebounds frequently occur.
Success Rate: Traders report approximately 90% accuracy with this method, making it a powerful tool for consistent profits.
Example: Stock PQR drops 2% throughout the day but shows signs of recovery in the last hour. By purchasing it 15 minutes before closing, traders often see a price increase the next morning.
Additional Insights for Generating Passive Income
Diversify Investments:
Spread investments across multiple sectors to reduce risk.
Include a mix of high-risk, high-reward stocks and stable dividend-paying stocks.
Leverage Dividend Stocks:
Choose stocks with a strong history of dividend payments.
Dividends provide a steady income stream regardless of market volatility.
Use Systematic Investment Plans (SIPs):
Invest regularly in equity mutual funds or ETFs.
SIPs help in averaging the cost of investment and building wealth over time.
Monitor Economic Indicators:
Keep track of GDP growth, inflation rates, and interest rate changes.
These factors influence market trends and stock performance.
Conclusion
Stock selection is a critical skill for traders aiming to generate passive income. By understanding and implementing the professional methods discussed above—most active shares, trending stocks, top gainers and losers, sector-wise scans, and heat maps—you can make informed trading decisions. Combining these methods with a disciplined trading plan will enhance your success in the stock market.
To achieve consistent profitability, focus on continuous learning, research, and execution. A well-researched approach will keep you ahead of the curve and ensure a sustainable journey in trading and passive income generation.