If you want to find the best swing trade stocks, you first need to understand what Swing trading is.
Trading stocks is not at all a new thing to do for traders, however, most are unaware of swing trading.
Swing trading is not just what a regular Joe can achieve without knowing the rules.
It does not work by shrewd guess and requires a lot of efforts.
Let us first understand what is this swing trading and then we will look to find best swing trade stocks.
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Introduction to Swing Trading
Swing trading is a form of fundamental trading where you can hold positions for more than a day.
It requires many days or even weeks for it to bring change in price movements, post of which you profit.
As it require so many days to bring in profits for the best swing trade stocks, corporate fundamentals are swing traders.
However, this is just a simplified version of its actually definition.
Swing trading sits somewhere in the middle of the time between day trading and trend trading.
A day trader will keep a stock for few seconds or hours, but less than a day.
Likewise, trend trader will analyze the fundamental trends of a stock for long term and may keep it for months.
On the contrary, swing traders will hold one stock for either few days or weeks between this continuum.
They trade the stocks based on the intra-week or intra-month movements depending on optimism or pessimism.
Swing trading focus on attaining smaller profits in little time and quickly cut off loses.
Although profits are smaller, but over the course of a year, this consistent profits compound to good returns.
They mostly trade in 100 share increments, limiting simultaneous positions to 10 or lower.
Since it depends on the price movement, picking the best swing trade stocks depend on technical analysis.
Selecting the best swing trade stocks is very important in swing trading unlike position trade.
Swing Trading Strategy to Choose the Best Swing Trade Stocks
Now, let us look into the fundamentals of swing trading strategy to find the best swing trade stocks.
Unlike other trading forms where you target 20-25% of your stocks, you should target 10% in swing trading.
You can also opt for a more modest 5% profits in tough markets.
This might not seem appealing as your toast, and not even life changing, but this is where time comes in.
Time is a crucial factor in swing trading as it depends on not just a day.
So, take time into consideration when you try to pick the best swing trade stocks for you.
A swing trader does not focus on profits developing for months or weeks, rather they look for 5-10 days.
Since a swing trade usually last for 5-10 days, you can earn consistent profits.
Rather than profiting once a month, you can earn several small profits that will eventually turn into big overall returns.
If you are satisfied with 20% over one month, you can have significant profits with 5-10% every week.
However, you also need to evaluate losses when trying to find the best swing trade stocks.
Your portfolio will grow with small profits only if you keep the loss in check or small.
Instead of taking stop losses for 7-8%, try to make quicker losses for 2-3%.
This will help you in managing profit and loss ratio to 3:1, which is the best for your portfolio.
It is one of the golden rules of constructing portfolio.
Always maintain this golden rule, since big losses will ouster your portfolio from growth.
It will eventually make all your smaller profits go in vain.
However, swing trade can also result in bigger profits whilst individual stock trades.
If you see plenty of strength in a stock initially, you can hold it for long time to attain big profits.
You can also take half of the profits and let the remaining half to run and grow likewise.
CAN SLIM & Swing Trading
Despite of the fact, CAN SLIM Investment system is for long term investments, it still works for swing trade.
Keeping this system in mind can also help you find the best swing trade stocks.
Prior Stock uptrends are absolutely important.
Always try taking breakouts from consolidations.
Sideways actions that stops offering much room is always imperative.
To attain the best prospects, High Relative Strength Ratings play a predominant role.
Volume confirms that the institutions are collecting shares, however, swing trade adds time frame as a twist.
You might be looking forward to consolidations in shorter timeframe than 5-7 weeks.
If you look for 30% prior uptrends, it will take time and more requirements.
However, if you look for just 5-10% smaller ones, it takes less time and lesser requirements.
The Best Swing Trade Stocks
The most important part of successful swing trading is to find the best swing trade stocks.
In this case, large cap stocks are the best swing trade stocks that are available on all the major exchanges.
These best swing trade stocks will swing actively between high and low extremes that are broadly defined.
As a result, the trader will go in one direction for weeks or days and eventually switch to the opposite.
A trader switch to the opposite when the particular stock changes its direction.
There are two different extreme markets which are bear market environment and raging bull market.
Swing trading appears to be completely different in terms of challenge between these extreme markets.
The best swing trade stocks may not show consistent movements in these extreme markets.
On the contrary, you can notice stable movements of indexes for even few weeks or months.
In these both bear and bull markets, the stocks are carried for long term in one direction by momentum.
Therefore, the best plan is to go for the long term direction when choosing the best swing trade stocks.
However, your swing trade is the best when these markets go nowhere.
It is when indexes goes up for couple days and then goes down, likewise repeating the same pattern again.
With the best stocks and indices approximately at their original levels, once can easily spend couple months.
However, swing traders can leverage the opportunities of going with the short term movements and earn profits.
Nevertheless, your success depends on knowing what market you are experiencing for both swing trade and long trade.
For the late half of the 90’s trend trading would be the best option, whereas swing would be for 2000-01.
Utilizing Exponential Moving Average
This is another crucial factor to take into consideration when finding the best swing trade stocks.
Simple Moving Averages or SMAs offer resistance as well as support levels along with bullish or bearish market patterns.
You can identify which best swing trade stocks to buy depending on the support as well as resistance levels.
Likewise, bullish and bearish patterns helps identify price levels when you must enter or exit the best swing trade stocks.
Now, EMA or Exponential Moving Average is actually a distinct variation of Simple Moving Average.
It emphasize more on the latest stock data points collected.
It provides a better and clear trend signals of entry or exiting the best swing trade stocks faster than SMA.
You can also use EMA crossover while swing trading for entry and exit points.
You can use the basic EMA crossover pattern by implementing nine-, 13- or 50- period EMA.
When a price goes up above these points after lying low, a bullish crossover happens to show up.
This clearly signifies that an uptrend is beginning and you can expect it to reverse.
When you see a nine- EMA surpassing the 13- EMA, you need to understand it is a long entry.
Nevertheless, the 13- EMA has to go beyond 50- period EMA or even surpass it.
On the contrary, when the price points of a stock goes down beyond these EMA, it signifies bearish pattern.
It clearly shows the potentiality of a reversal and you might want to exit from the long term.
A short entry or exit from a long position is signaled when the nine-EMA goes below the 13-period EMA.
Nevertheless, the 13 point EMA has to be below the 50 period or more below than that.
Best Swing Trade Stocks Should Have Good Volume
When finding the best swing trade stocks, the first thing to take care of is volume.
You need to ensure that your ETF or stock has an average of more than 200,000 shares every day.
Mutual funds or Institutions ignore those stocks having less than 100,000 shares.
Your stocks won’t have co-relation with the market, when there is low institutional sponsorship.
The best swing trade stocks ideas are that comprise volume of more than 200,000 and less than 100,000 shares daily.
Moreover, stocks like this tend to be more volatile during heavy trading.
It is because while trading very few traders actually show interest in going the opposite direction.
Importance of Volatility in Picking the Best Swing Trade Stocks
A particular stock if moves drastically up or down at volatile swings are often troublesome.
This is why most long term traders won’t think about getting these stocks.
Swing traders or short term traders can take opportunity of trading for days rather than months.
The drastic price reversals make it great for swing traders to earn profits from upswings as well as downswings.
They just need to use long or short positions appropriately.
The best swing trade stocks should have atleast a range of more than $2 daily.
In a nutshell, it means there will be a swing of $2 or even more daily for the stock.
Some stocks can remain calm or be volatile over a period of time, so check the last few weeks or 10 days.
You need to ensure that the volatility is more than $2 a day.
You should write it down in your notebook about the volatility if you want to find the best swing trade stocks.
Stocks that are $20 don’t have that much wide trading range and are not volatile, so better to avoid them.
So when trying to find the best swing trade stocks, do not go for stocks less than 20 dollar price.
Locating Market Trends and Correlation Is Important to Pick the Best Swing Trade Stocks
One common blunder people make while choosing the best swing trade stocks is ignoring the correlation rule.
In terms of risk, correlation is one of the most deciding factors.
When you ignore this factor, your odds of profits are reduced and risk is increased.
In simple words, correlation is the closeness of your stocks following each other.
If you select best swing trade stocks of couple similar companies, their stocks may seem the same.
On the contrary, when you choose two distinct stocks, the correlation reduces.
Every stock in the market has correlation to each other.
The more a stock has institutional sponsorship, the more correlation can be found to the stock market.
That is why you should pick stocks with moderate volume so the stocks have less correlation.
This also provides diversification to your stocks.
You would not want to end up in loss for all your 10 stocks, if one of your stocks are underperforming.
Nevertheless, the bias of a market, bullish or bearish helps you in understanding the stock trends in it.
You can use stock screening software to filter such stocks depending on their fundamental as well as technical criteria.
Technical Analysis to Pick the Best Swing Trade Stocks
There are two procedures to pick the best swing trade stocks based on technical analysis.
They are technical market indicators and charting patterns.
People tend to choose technical market indicators since they are easy in using and systematic.
When done properly, technical market indicator helps buying and selling of the signals effectively.
It selects from the vast collection of stocks created during the early screening process.
Charting patterns on the other hand works in a bit different way.
You will be provided with patterns after the graphing is done on the price shifts of the stock.
Once you recognize the money making patterns, you can select the best swing trade stocks for you.
You can also get into a formidable profitable position from swing trades.
These patterns can also be generated from the rules based systems and will help finding the best swing trade stocks.
You can stay ahead of the time and pick the best swing trades for you.
DO NOT CHOOSE FROM THE SAME INDUSTRY WHEN FINDING THE BEST SWING TRADE STOCKS
A common misconception when finding the best swing trade stocks is selecting stocks from different industry.
People think that choosing from 10 different industry means they diversify the stock pool.
This is absolutely not the case.
The companies need to have enough degree of separation so as to avoid high correlation degree.
It is simply written here and the terms which specify volume, volatility and correlation using math have been avoided.
You can use several indicators or tools to assess this properly.
Tight Spread Stocks
When finding the best swing trade stocks, you need to be careful with the bid and asking prices of stocks.
It is to ensure you can save yourself from slippage and not end up choosing wrong stocks.
The stocks having wide spreads absolutely make it difficult to go for a profitable swing trading.
Lower valued stocks are also not good for swing trades since the spread is too wide compared to percentage of the stock value.
Bottom-Line: Pick the Best Stocks Wisely
Swing trading is actually the best form of trading for novice traders to get their hands on trading.
However, it has a good potential for both expert and amateur traders too with high profit margins.
After trading for 2 days, you can get enough information on the stocks to get motivated.
If you want to pick the best swing trade stocks for profit, you need to ensure you do your research.
You need to take care of volume, volatility, tools and indicators etc and put them in a nutshell.
Swing trade is absolutely amazing and with little expertise, you can start trading with profits.
Finally, remember that you keep in check the correlation and do not go for big profit margins.
Instead look for smaller margins and earn consistently.