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How to Find Stocks to Swing Trade
Stocks for swing trading
Well, for starters, before we delve into how to find profitable stocks to swing trade, we need to highlight what is swing trading and how it’s different from day trading.
Swing vs. Day Trading
Swing Trading is a type of trading in which you hold a stock for one or a couple of more days, possibly even weeks, to profit from the market’s changes or “swings”. It is different from day trading because day trading is based on buying and selling stocks all on the same day. So basically, you go from holding your breath for a couple of hours to a couple of days, to see if you’re going to churn a profit. Sounds like fun, huh? Well, it definitely is with the right kind of training and education, you can learn how to find the right stocks to swing trade.
Benefits of Swing Trading
As mentioned, swing trading is when you hold a position in a stock for a number of days. One of the key benefits of doing so is saving capital because you are in a sense “trading less”, by staying in a position for longer.
Now that you know what swing trading is and how it is different from day trading, we can get into finding the stocks to help you swing profitably. There are a few things you need to do in order to find these stocks.
Learning the Market
First, learning the market, there is a general rule in swing trading that if a stock is going up, and the conditions in the market aren’t changing, then most probably the stock will continue to rise. This is pretty self-explanatory; the key is also finding the most profitable stocks. A good start is by keeping up with stock news, keeping an eye on high rising stocks, and using scanners, the earlier in the business day you do this, the better.
Second, patterns, if you remember in math, a pattern is a recurring sequence. In terms of trading, if you examine a stock and you see it has a trend or a pattern that’s consistently, going up, it makes it easier to pinpoint when it would be good to swing and make a profit. The stocks that have a consistent pattern are more reliable and make it easier to swing trade. When the stock is consistently going up, this is called a clean uptrend, and for most beginner traders, this is the pattern they are most comfortable in using because there is an indication that the stock will continue to rise.
Of course, if the stock is trending down, and nothing in the market is changing, then it’s best to look at another stock, but if the stock is down, and the market is volatile, then there is a chance things will change. Stocks that are more prone to be volatile and break away from the normal range could give you a bigger profit, but with a bigger risk. Above all, analyzing the patterns and getting to know the market gives you a leg up in making some profit.
How to Judge Stocks
Besides learning the market, and analyzing patterns, there are four specific ways to judge individual stocks:
- Liquidity: is the degree to which a stock can be purchased or sold in the market for its current value, it is relevant to judging a stock because stocks with higher liquidity usually have lower bid-ask spreads, which means somewhat of less risk. In other words, when a stock has high liquidity it means there are a large number of orders to buy and sell in the market at the same time, which increases the probability that the highest price to buy and the lowest price to sell will come closer together.
- Correlations and Volatility: Similar to finding patterns, checking for stocks that have correlations mean how it moves concerning the market. If a stock has a high correlation, meaning it goes up with the market then it is a good chance of being a profitable stock. If a stock is more volatile it is not as reliable, thus being riskier but as they say the riskier the action, sometimes the bigger the reward.
- Reliability: When a stock is reliable it is easier to profit from, you know when you can swing it and have a green day.
- Market Makers: Market Markers help keep the market functioning by keeping the liquidity in the market by buying and selling stocks, because of them if a stock has high liquidity it is better to swing.
Finally, swing trading can be a very profitable and exciting type of trading, and by learning how to find stocks to swing trade, it becomes even easier. The best way to go about doing so is to start with a plan before you trade, although some days things change and you don’t trade according to plan if you go into your day with an idea of what you want to trade and for how long, it makes things a lot less difficult, and it gives you more control on the many changes that sometimes occur within the market.
We all know what it feels like when the market seems to be going crazy and we find ourselves in a position we didn’t plan on being (no pun intended.) Hence, by making a plan and familiarizing yourself with the market, predicting patterns, and using the four ways to judge a stock you can identify which stocks to swing trade and make money off of the most, because in the end whether its swing trading, day trading, position trading and so forth, we all just want to have a very green profitable day.
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