Swing trading is a style of stock trading. How to pick stock to win swing trading is a common query for new swing traders. Newbie swing traders may not well-trained in swing trading strategies. Perhaps, you want to start swing trading but you haven’t enough knowledge about this trading method. Don’t worry. You are in the right platform. Just complete the reading this post and try to apply below strategies.
What is swing trading?
Swing trading is trend reverse trading. Simply, you have to buy in downtrend reversal and sell in uptrend reverse point. More specifically, you have to learn how to trade trend reverse techniques. Swing traders hold stock one trading day to several weeks. They wait for perfect time. A swing trader’s buying and selling styles are different from day traders.
What are the differences between swing trading and day trading?
The main different between two terms is day traders hold and sell stocks for in a single trading day. On the contrary, swing traders hold for one day to several weeks. Day traders keep a sharp eye on minutes chart. On the other hand, swing traders look carefully day chart.
Moreover, swing traders think twice for following the golden rule of stock trading-stop loss order. But, day traders follow the stop loss rule instantly. However, day traders are actively trend reverse traders and swing traders are less active in trend reversal. Swing traders actually make profit by swing a stock.
How to win swing trading?
To win in swing trading, you should learn about buying and selling techniques.
Swing traders’ main buying strategy
First of all, swing traders have to wait for buying time. Generally, they buy a stock when price starts to uptrend from a continuous downtrend. They closely observe the market. When price of a stock hit the final falling, they wait for putting buy order.
They put buy order when the falling price starts to change direction toward uptrend. They eagerly wait for downtrend reverse. As they buy at discounted price, they are not hurry to sell like day traders. However, they make profit at the time of buying.
A swing trader can buy a stock when he believes that this stock price will increase in near future. They are not hurry to buy like day traders. Moreover, they wait for perfect time. A swing trader knows how to trade in downtrend market.
Swing traders’ main selling strategy
Swing traders wait for another uptrend reverse point to sell their holding. All the swing traders selling styles are not the same. Some of them want to sell when their holding starts to go down. Low risk traders try to correct their trading mistakes by following stop loss.
But, many swing traders don’t care about short term price fluctuation. They even hold week after week before their holding reaches at profit. If they can hold for a perfect time, they may win the trade.
How to pick a stock for swing trading?
Picking a stock means picking a suitable company for this type of trading. Many traders just follow the technical indicators. But you should apply both technical and fundamental indicators.
These are the top 11 indicators for picking a right stock to win swing trading
Technical indicators for selecting swing trading stocks
Technical indicators are the main indicators for swing trading. As technical indicators help to get the instant price movement information, almost all swing traders follow this below technical indicators.
1. Candlestick Chart for swing trading
Candlestick chart is one of the best technical indicators to know the instant price movement of a stock. This chart provides information from opening price to bull or bear market condition.
Thus, traders have to master on this chart to understand the price movement of a stock. As candlestick chart is widely used and has many patterns to learn, you need to know the about the basic formation and application of candlestick chart. Just you should buy a stock at bear market and sell at uptrend market.
How to take decision from candlestick chart?
Buy at bearish trend reverse point (red pattern candle changes to green candle) and sell at bull reverse point (green candle turns into red candle)
2. Minutes Chart
This chart somehow similar to candlestick chart. But, traders prefer candlestick chart to minutes chart. As the application is somehow similar, you can follow one of them or both in together. So, I suggest that you follow both chart or candlestick chart alone.
3. RSI (Relative Strength Index) for swing trading
Relative strength index (RSI) is another good technical indicator for swing traders. They can learn buy or sell pressure from RSI indicator. You should learn about the best technical indicator: RSI indicator to take suitable decision. Try to buy a stock when its RSI below 30 or nearly 30.
On the contrary, sell your holding when your stock’s RSI reaches more than 70. Below 30 means sell pressure on this stock and this time is suitable for buying. Above 70 means buying pressure. RSI’s value between 30 to 70 indicates neutral position. Hence, you should sell when your holding touches RSI 70. Otherwise, your holding may reverse to downtrend movement.
4. MFI (Money Flow Index) for swing trading
Money flow index is similar to RSI indicator. MFI considers value. Moreover, this indicator indicates overbought or oversold condition. MFI below 20 indicates oversold and above 80 indicates overbought. MFL’s value between 20 to 80 indicates neutral position for a specific stock. To find out the selling and buying time, you need to learn both RSI and MFL indicators.
5. SMA (Simple Moving Average)
Simple moving average may consist of any number of days. Generally, SMA may show 20 days, 50 days or 200 days. Just you can learn the average price for a period of time. Generally, the nearest SMA shows the more recent time average price. Suppose, 20 day’s simple moving average for a stock is 50 dollars.
50 day’s simple moving average is 45 dollars. 200 day’s simple moving average is 40 dollars. Here, 20 day’s moving average is higher than 50 day’s average price. That means, this stock price is uptrend. You may put buy order if the uptrend is going forward. So, you should buy near the lowest price of 20 days’ or 50 day’s simple moving average
6. EMA (Exponential Moving Average)
Exponential moving average is similar to other types of moving average. But, EMA is calculated by using more recent data. That means, you can put more importance on EMA than SMA. Although SMA, EMA and WMA are the similar indicators, you can put extra weight on EMA and WMA.
7. WMA (Weighted Moving Average)
Weighted moving average also weight for recent data. Present data are more valuable than past data. You can follow WMA price to understand the difference between the present price and weighted average price.
Suppose 50 day’s weighted moving average for a stock is 60 dollars. But market price of this stock is 55 dollars. If you read the candlestick chart and learn that price starts to uptrend, you should buy near 55 dollars.
8. Beta for swing trading
Beta coefficient indicates systematic risk of an individual stock in comparison to unsystematic risk of the entire stock market. This coefficient uses to know the volatility of a stock compared to market movement.
A beta value is 1 for a stock indicates its price is highly correlated with market movement. Its value is less than 1 means this stock is less correlated with market movement. Its value greater than 1 means this stock is highly volatile than market movement.
Why beta is important for swing traders?
As beta indicates price volatility for a stock, more than 1 beta value is better for swing traders. They can easily sell this stock.
9. MACD (Moving Average Convergence Divergence)
Moving average convergence divergence is a trend following momentum indicators that shows the relationship between two moving average of a stock price. Traders may buy a stock at bearish when MACD crosses above its signal line and sell at bull when MACD crosses below the signal line. Generally, Swing traders can follow MACD signal line to take buy or selling decision.
Fundamental indicators for swing trading
Swing traders put more emphasis on technical indicators. I just put top three fundamental indicators to know the foundation of your selected stock.
10. P/E ratio (Price to earn ratio)
Price to earn ratio is a fundamental indicator that indicators return and investment. This indicator is highly recommended for investors. But swing traders can watch P/E to know the fundamental basis of his targeted stock. Moreover, they can also minimize risk by buying a low value P/E ratio stock. Although, swing traders don’t care about P/E, you should buy low P/E ratio stock to minimize your risk.
Earning per share (EPS) is a number one fundamental indicator for investors. Therefore, this indicator can help you as a swing trader to convert your swing trade to short-term investment. Fundamental indicators can help to minimize risk of a swing trader but can’t directly influence on short term profit. High EPS stock is suitable for investors.
But, you should see the EPS to understand the fundamental basis of your stock. I have already mentioned 11 swing trading indicators. Intentionally, I didn’t put any formula. Because you need to read the information. All the formulas are available in any trading platform. You need to read the result to take decision.
In this article, I put all the indicators and strategies to win in swing trading. Remember that, all the above information is theory. Here, you have just learnt the procedures. Therefore, all your success and failure depend on your experience and knowledge. No one can guarantee your success except you. At first you need to learn all the information. Final step is trial. Gather experience to win the battle.