How To Scan Stock For Swing Trading? Ultimate Guide (2024)

What is Swing Trading

Swing trading is when someone holds stocks for a few days or even weeks to profit from the 'swing' in stock prices. It is different from intra-day trading, whereby one is supposed to sell stocks on the same day as buying. In swing trading, the market trends are followed to gain profits without continuously having to monitor the market.

Swing trading is an investment strategy that involves viewing charts with the intent of predicting future movements in the price of stocks. An investor who understands these patterns can buy stocks at low prices and sell them at high prices.

Understanding Swing Trading Stock Selection

Choosing the right stocks is crucial for swing trading success. Here’s what you need to consider:

1. Liquidity: Ensure that the stocks you choose have high liquidity. The Share can easily be bought and sold without causing significant changes in price. Stocks that constitute high trading volumes are more liquid.
2. Volatility: Look for stocks that show significant price movements. High volatility will present more opportunities to buy at low and sell at high. However, return expectations rise proportionately with increasing risk.
3. Market Trends: Analyze overall market trends and sector performance. The stocks belonging to trending sectors generally offer better swing trading opportunities. For instance, technology or healthcare sectors may be more active in Terms of trading as compared to other sectors.
4. Technical Indicators: Moving Averages, RSI, and MACD are examples of technical indicators. These help in the inference of future price movements from past data
5. News and Events: Keep up to date with the latest news regarding your stocks at hand. Earnings reports, product launches, and other noteworthy events cause fluctuations in the prices of stock.

How To Choose Stocks For Swing Trading

Finding the best stocks for swing trading involves a systematic approach. Here’s how to select stocks for swing trading:

1. Technical Analysis

Technical analysis is a method that informs about the markets by considering past stock prices and trading volumes. This type of analysis uses charts and several indicators to predict future price movements. Here are the main tools:

• Moving Averages (MA): These help smooth out price data to create a single flowing line, making it easier to spot trends.
• Relative Strength Index (RSI): This measures the speed and change of price movements, helping you see if a stock is overbought or oversold.
• Moving Average Convergence Divergence (MACD): This shows the relationship between two moving averages of a stock’s price, helping you identify buy and sell signals.

2. Fundamental Analysis

Fundamental analysis involves looking at a company's financial health to determine its stock's value. Key factors include:

• Earnings Reports: Check a company's quarterly and annual earnings to see how profitable it is.
• News Releases: Stay updated with the latest news about the company and its industry.
• Market Trends: Understand the overall market and industry trends that can impact the stock price.

3. Sector Analysis

Some sectors do better than others at times. Knowing what sectors and industries are outperforming broad market indexes could allow you to select the best stocks for swing trading. Look for leading sector performance with growth potential.

4. Sentiment Analysis

Sentiment analysis gauges the mood of the market due to social media, news articles, and what experts have to say. Positive sentiment may push the stock price higher, while negative might drive it lower.

5. Check the Stock's Volatility

Moderate volatility is ideal for swing trading. Look for stocks with an Average True Range (ATR) between 2% to 5% of their price.

Example: If a ₹100 stock has an ATR of ₹3, it's in the optimal range for swing trading.

6. Check for Upcoming Events

Be aware of significant upcoming events like earnings reports that could impact the stock price.

Example: Avoid entering a swing trade right before a company's earnings report, as this could lead to unexpected price movements.

7. Use Multiple Timeframes

Analyze the stock on different timeframes to confirm the trend. Look at daily charts for the overall trend and 4-hour or 1-hour charts for entry points.

Example: If Infosys shows an uptrend on the daily chart and pulls back on the 4-hour chart, it might present a good entry opportunity for a bullish swing trade.

1. Screening Tools

• Finviz: A powerful stock screener that helps you find stocks based on various filters.
• StockFetcher: Another great tool for screening stocks using custom criteria.
• TradingView: An advanced charting platform with a strong community of traders attending.

2. Charting Tools

• MetaTrader: Offers comprehensive charting and analysis tools.
• ThinkorSwim: A robust platform provided by TD Ameritrade, excellent for in-depth technical analysis.

3. News and Analysis Tools

• Seeking Alpha: Provides market news, analysis, and research tools.
• MarketWatch: Offers financial news, stock market data, and analysis.

4. Mobile Apps

ShreeVarahi (Lakshmishree): A user-friendly app for trading stocks with no annual fees.

Indicators To Identify Stock For Swing Trading

Swing Traders, before investing in any stock analyze it and then move forward to trade or invest in it. They also rely on different indicators which help them in selecting the stocks for swing trading. Some of these are discussed below:

1. Moving Average

The Moving Average is the average of a share’s prices over time. It is a lagging indicator and makes the daily price fluctuations very less. The Moving Average also smooths the short-term spikes in the prices of the shares of any company.

The Traders use the Moving Average indicator when the short-term moving average crosses the long-term moving average.

2. Volume

Volume is the most important indicator for swing traders as it depicts the strength of the ongoing trend. Volume as an indicator is important when there is a breakout. A change in the price without a change in the volume of trading is not a change in trend.

When the volume is high, it indicates that real buyers and sellers are present in the market. Volume as an indicator is used to spot the bullish trend.

3. Relative Strength Index

The Relative Strength Index (RSI) shows whether the prices of shares of a company are in the overbought zone or the oversold zone. If they are in the oversold zone, the prices are expected to an uptrend while if they are in the overbought zone, the share prices reverse to the downtrend.

RSI is a price oscillator that moves between 0% to 100% with limits at 30 % and 70 %. The area below 30% and above 70% is known as the oversold and overbought areas respectively.

4. Ease Of Movement

It is a technical analysis that explains the relationship between the rate of change in the price of an asset with its volume. It is used to determine how with ease the price of a share can either rise or fall.

5. Support And Resistance

The lines of support and resistance create a price band between which the price of a security moves. These lines help the traders to plan the entry and exit in the market for a share of any company. When the price falls it reaches the support line which means that the demand has increased while if the price is rising that means that there is an increase in supply and the price will be near the resistance line.

If the price reaches any of the lines the trader may not gain much during this time.

Advantages Of Swing Trade

• Swing trading takes up less time than Intraday trading and can be done part-time.
• It does not tie up the capital for as long as it is for a short period.
• Swing trading is flexible as if the stock they bought is in loss after the specific time they are not bound to sell it.
• Swing Trade helps the investors earn short-term profits which helps them fulfill some of their short-term goals.

Difference Between Swing and Day Trading

Swing Trade and Day Trade are very similar in many ways. But there are some differences between them mainly regarding holding time and the number of transactions.

1. Swing trading can be held for more than one day and maybe for a few weeks, while in Day trading, the position needs to be squared off before the end of the trading day.
2. In Day trading, multiple trades with many transactions take place in a day, while Swing traders may do the same number of trades in a week with few transactions.
3. Day trade requires constant attention, while Swing Trade can be done part-time and periodically without the hassle of checking the prices multiple times during the day.
4. The gains and losses are slow in Swing trading compared to Day Trading, where they can earn or lose money in the blink of an eye.

Conclusion

Swing Trading means trading with the ongoing trend. People who are new to trading can start with swing trading as it is held for more than a day, which gives the new traders some time to assess the stock. The traders do not try to make big profits in a single go but small profits at regular intervals. The time required during swing trading is less compared to the time and concentration required in day trading.

Swing trade can be subjected to the risk of an event that may happen when the markets are closed. All the traders who are venturing out to the field of swing trading are suggested to do an in-depth technical and fundamental analysis of the company in which they want to trade.

Frequently Asked Questions

Disclaimer:This article is for educational purposes only and should not be considered financial advice. Always conduct your research and consider consulting with a financial advisor before making any investment decisions.