What is Beta ?
Beta is defined as a measure of a stock’s volatility in relation to the whole market. By definition, the stock market has assigned a beta of 1.0, and individual stocks are ranked accordingly.
Individuals stocks are usually ranked to how much they deviate from the stock market.
A stock that swings more than the market over time has a beta above 1.0. Those stock with higher beta can be called as High Beta stocks.
High beta stocks are very good bet for Intraday trading – Since the movement is high, trading with caution is recommended.
As the beta value increases the stocks volatility will also increase – Choose stocks according to your risk taking capacity (A stock with beta value 4 is more volatile than the stock whose beta is 2)
Example: For a stock having a beta 2 indicates that if the sensex moves by 1 point the stock is likely to move by 2 points.
Procedure for selecting stocks
- Add the listed stocks to your watch-list before a day
- Next day, At 9.30 AM identify the scripts which have gained/lost more than 1%, use those scripts for day trading
- If Nifty is above 0.25% go on the buy side and if below 0.25% go on the sell side.
- Wait for small retracement: this can be identified using the stochastic indicator or RSI
- Enter at the next candle after confirmation
- Keep target of 0.3% of the stock price for beginners and experienced traders can keep their targets based on technical analysis.
Learn how to set stop loss using ATR Indicator
How to find retracement in original direction
Take for example you shortlisted a stock ”X” for buying. The stock would have moved up to some extent by 9:30 AM and the stochastics indicator is in the overbought region.
You should never buy at this point – Chances of profit booking is high in the overbought region and entering at this point you may end up in loss.
So, to be on the safer side you wait for the stochastic indicator to come down a bit and enter when you get the bug signal for the first time.