What is Swing Trading and How to Find Stocks to Swing Trade?
One of the most convenient offerings in the stock market is the variety of trading types that traders can choose from. Some invest in the market for the long term, while others can choose to buy and sell their stocks within a shorter time frame.
If you have heard about swing trade and are wondering whether it is a long-term or short-term form of trading, it is safe to say that it is close to both.
However, unlike day trading, where traders close their positions before the day ends, in swing trading, the position is held for a few days or a couple of weeks. This is also unlike trend trading, where the studies the important long-term trends in stocks and may hold the position for at least a few weeks or even months.
Swing trading strategies such as a bull flag on the daily chart, support and resistance triggers, channel trading, Fibonacci retracements, and others can also help traders identify trends, patterns of the market and price levels in the market so that they can not only choose stocks to swing trade but also carry out trading effectively.
How to Find Stocks to Swing Trade?
One of the few important things you should know while starting your journey in the stock market is that not all stocks are suitable for all forms of trading. However, finding stocks to swing trade may not be difficult if you are aware of the technique and follow a few basic rules while picking the stocks.
- Study the market direction
During a trading session, it is important to keep an eye on which direction the market is going. If a stock value rises in the given market condition, it is likely that the rise will be steady as long as other factors remain constant. To find stocks that are performing well in the market, you can always track the company’s news, follow stock indices or refer to the top stocks on the exchange.
- Look out for a direction bias.
A potential buy or sell signal can help swing traders find trade opportunities. A combination of fundamental data along with technical analysis for identifying the stocks and the relevant sectors that beat indices for most of the trading hours can also help. When traders look for stocks to swing trade, they tend to look at the ones containing some volatility and volume.
This is how they screen stocks, and the process also includes the following factors:
- Liquidity: For swing traders, liquidity is one of the important factors. The trading value of a stock indicates its demand in the market, and the liquidity is gauged based on the frequency with which it is traded on the exchange. Therefore, those with a high trading volume are considered liquid stocks that are good for swing trading and are less exposed to risk.
- Comparative Analysis: One can carry out a comparative analysis of the stocks in the same sector by comparing the performance of one with the others. The goal is to identify and pick the strongest one that has beaten or outperformed the indices of the sector.
- Repetitive Pattern: It is essential that when a trader selects stocks to swing trade, the stocks should have shown a repetitive pattern of being traded in the market that is considered to be a sign of reliability. Seasoned traders anticipate the stock to break the range before they enter the market, and this way, they can make many small profits while going with the trend.
Also Read: Flag Chart Pattern
- Stability: Traders also tend to select stocks that show some stability. When they pick stocks to swing trade, they avoid going for those that show fewer gaps in the price line. Such stocks have small price movements and can be used to swing trade.
- Volatility and Correlation: Stocks that move outside the market trend may not be appealing to traders looking for stocks to swing trade. This is because such stocks are considered to be inconsistent, especially if the trader is looking for stocks in major market indices. It may surely help if you research the past performances of the stock to understand the reason for such unpredictability.
- Volatility: A trader also needs to consider a stock’s volatility to understand the range within which its price will move. This helps them decide if the risk the stock carries is worth it, as long as the price range and the movements are fairly identifiable during the time they are being traded.
As a swing trader, using all or a few of these strategies can help you trade. However, over a period of time, it is always wise to develop some tried and tested swing trading strategies of your own so that you can not only find your choice of stocks to swing trade but also understand which ones suit you and your trading style.
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Frequently Asked Questions
There are no fixed amount of earnings in the stock market. Depending on how you trade and how effective those trades are, you may earn as much as you intend to or less than you expect. Market volatility can also affect your earnings. Just be sure that you do not invest a large sum of funds that can cause heavy losses in case of a missed opportunity.
Swing trading is for those wanting to hold their positions for more than a day till up to 2-3 weeks, while intraday is for traders who close their positions with the close of the market. Both are equally suitable, but the strategies used to carry out the trades are different, and so, you will have to decide what type of trader you are.
Any form of trading will carry some risks, especially market risk. If you have enough experience with trading or swing trading, you will be able to protect your investment. Newcomers should first learn more about swing trade before they start trading practically.