Choosing the finest stocks to swing trade takes time and effort, and it is critical to choose the correct stocks to swing trade in order to be successful in swing trading stocks.
Swing trading differs from investing in stocks or day trading in stocks in that you choose a stock to swing trade and hold the position for a few weeks to a few months. Furthermore, stock traders should be aware of some inherent hazards.
However, once you begin swing trading stocks, you may find yourself holding many positions in various equities, which can be tough to manage. In such cases, it is critical to select the best stocks for swing trading and have a portfolio tracker.
In this post, we will look at the crucial factors to consider when selecting the best stocks for swing trading, and at the end of this article, you will be able to select stocks that meet the swing trading requirements.
Things to Remember Choosing the best stocks for Swing Trading
Unlike day trading, where traders prefer volatility in stocks, swing trading requires you to consider a variety of other aspects because your ultimate aim with swing trading options is to make money by selecting the correct stocks to trade.
Let’s have a look at some of the most significant factors to consider when choosing the best stocks for swing trading.
1. Focus on the price action of stocks
It is easy to be drawn into trading stocks that generate a lot of attention, such as new product announcements, surprising news releases, or interviews. These stocks can generate a lot of excitement for a short period of time, but they can quickly become monotonous, and they are frequently featured on financial TV networks or in financial periodicals.
Some stocks may make for great headlines and are totally acceptable, but they are not appropriate for swing trading since there may be a lot of news coming out, but once the excitement wears off, the stock can simply return to its range and sideways.
Nevertheless, you may eliminate such stocks by examining their beta, which is a measure of a stock’s volatility relative to the larger market, with a beta of 1 for the latter.
Individual stocks are given a beta in respect to the broader market or market index, and a beta greater than one indicates that the stock in question rises higher than the market, while a beta less than one indicates that the stock in question travels lower than the market.
Furthermore, you can identify high beta stocks by using any of the free stock scanning tools, and it is vital to focus on large-cap stocks when selecting high beta stocks.
2. Track the developments in the Company
Swing trading is keeping a position for an extended length of time, whether weeks or months, during which time the stocks might shift direction and form new trends. And most of these changes occur as a result of the stock’s price responding to the new developments; consequently, it is a smart practice to have a list of stocks that you are actively trading while keeping watch of the stock’s advancements.
Furthermore, there are a lot of techniques to watch the changes of a stock, like focusing on the news that is broadcast on financial TV networks or setting a Google alert for the stocks that you are now trading.
This allows you to receive automatic news releases on stocks of interest, as well as see whether your positions are at risk.
3. Always pick high-volume, large-cap stocks!
When it comes to choosing the best stocks for swing trading, you should adhere to large market cap stocks with high average daily volume, as stock market liquidity is vital not only for day traders but also for swing traders.
However, many traders are lured to penny stocks or small-cap stocks because they are highly volatile and can result in large wins or losses. However, these stocks come with a risk, as when you try low-volume stocks, there is a good probability that your order fills may be incomplete or at a cheap price.
Furthermore, these small-cap and penny stocks are perfect targets for pump-and-dump schemes, which are simply enormous volumes of orders that quickly shift the prices around, luring swing traders to acquire a position only to see the direction reversed.
Although small-cap stocks traded on a reputable stock exchange have some safeguards in place to avoid pump and dump, the fact remains that trading these stocks is equally dangerous.
4. Keep track of the stock leaders and the laggards
Every industry or sector in the stock market has its own share of leaders and laggards, and some of the best-performing stocks tend to put up a superior performance when compared to others within the same sector. This performance is typically influenced by many factors, such as market cap and volume.
However, a leading stock in the sector is the one that moves the most, which could be owing to the fact that they control the sector.
However, such leading stocks are also vulnerable to large losses, therefore in order to swing trade stocks, the appropriate balance between leading and lagging stocks is required.
Lagging stocks are often slower, frequently play catch-up, and are less expensive than leading stocks. As a result, for swing trading stocks, you can concentrate on stocks that are significantly weaker than the market and have lower valuations.
5. Catch the trend early
One of the most important aspects of selecting the finest stocks for swing trading is to catch the trend and ride it for a set amount of time, but you don’t have to be early to catch a trend.
However, you should not be too late because the greatest time to trade a trend is when it is well-established and there is still some possibility for growth.
As a result, swing trading such stocks can be advantageous because you trade in the direction of the trend, capturing some profits from the larger trend.
Furthermore, you will be successful if you do not become overly greedy in the markets, as the overall long-term trend remains strong, and catching such stocks is a wonderful opportunity to purchase the drop in the longer trend.
Swing trading necessitates keeping track of crucial news in order to identify companies poised for a breakout. Choosing the best stocks for swing trading is an art, not a science, and the only way to master it is to practice and keep note of your mistakes and learning.
1. How Do Swing Trading Stocks Work?
Swing trading is a short-term technique that aims to profit from price changes in a stock within a few days or weeks. Price movement, trending behavior, and high volatility characterize stocks that are suitable for swing trading.
You can open a brokerage account with a platform like TradeStation or Interactive Broker to start buying and selling stocks. For swing trading, several of these stock trading platforms charge no commissions; however, other fees may apply.
2. How Much Capital Do I Need to Start Swing Trading Stocks?
Many online trading platforms do not demand a minimum amount to begin trading, however most investors begin with $5000 – $10,000.
It is also feasible to begin swing trading with $100; however, this may limit trading activity. Consider your risk tolerance, beginning capital, trading expertise, and, of course, trading platform before investing large sums of money.
3. Is it safe to trade stocks on swing trading platforms?
Trading platforms that are authorized and regulated by FINRA are regarded as secure. These systems further protect assets and finances by segregating funds, encrypting data, and safeguarding data. Swing trading platforms such as TradeStation and Interactive Brokers are regarded as the most secure.
The Securities Investor Protection Corporation (SIPC) protects the securities of most platforms’ clients. Some providers, such as Interactive Brokers, also provide insurance for the securities they own.