If you invest your money in the stock market, then you must be aware of swing trading, which is all about jumping on trends and keeping the investment long enough to make a great profit. But have you ever wondered how to find the right waves to ride in the stock market? When you are investing in stocks, it is important to understand how to make your move at the right time. And this refers to selecting the right stocks for swing trading and riding on them for the right duration.
If you are also looking forward to understanding how to select stocks for swing trading, then you are at the right place. Read on to learn more about swing trading and how to choose stocks for swing trading.
What is Swing Trading?
Swing trading is a trading style wherein you buy a stock on the basis of a trend and then hold those stocks for a short period, like for a few days or a few weeks, before you take advantage of price swings. Here, you are not monitoring your trade throughout the day, and you have not invested for the long run. You can think of it as a medium-term trading strategy where you catch the upward or downward swings in the prices to make a profit.
Swing vs. Day Trading: What’s the Difference?
The difference between swing trading vs intraday trading is quite simple. In swing trading, you buy a stock and hold it for a few days or weeks while looking to make profits from short-term price movements.
However, in day trading, you buy and sell the stock on the same day, sometimes within minutes, to make quick profits.
Swing trading is more relaxed and provides you more room to make profits in comparison to day trading, which is quite fast-paced.
How to Choose Stocks for Swing Trading: Key Factors to Consider
Now, let’s talk about how to choose stocks for swing trading. Here are certain factors you must focus on while selecting stocks. Follow it and you have higher chances of registering profits.
1. Breakouts
A breakout occurs when the price moves beyond a certain level of resistance (the highest point it has reached) or support (the lowest point it has touched). Once the stock breaks out of this range, it often means the start of a new trend.
Example of a Breakout:
Imagine a stock that has been bouncing between ₹100 and ₹120 for weeks. If it suddenly breaks through ₹120 with strong volume, this means it is starting an upward trend. This is when you can enter the trade.
2. Volatility
Volatility is all about how much the stock price moves. If you are in for swing trading, you would certainly wish for stocks that move. High-volatility stocks would give you more opportunities to ride the price swings.
3. Liquidity and Volume
Liquidity is an important factor you should not miss out on. For swing trading, you need stocks that are being actively traded so you can get in and out of a trade without much hassle.
Tools & Indicators Every Swing Trader Should Know
Every trader must use certain tools so that they can figure out when to buy and when to sell. Here are certain tools and indicators you should know:
Technical Analysis: It involves studying price charts and patterns to predict future movements.
Relative Strength Index (RSI): The RSI is your guide to figuring out whether a stock is overbought (too expensive) or oversold (too cheap). RSI above 70 means the stock might be overbought, so you may want to think about selling. However, if it is below 30, then the stock is likely oversold, which means it could be a great time to buy.
Moving Averages: They help you smooth out the price data so you can see the overall trend more clearly. When the stock price is above the moving average, it is a good sign.
How to Choose Your Entry and Exit Points
For swing trading, it is also important to know how to choose the right entry and exit points. If you are not aware of it, here’s how you can understand:
- A good entry point is right after a breakout or when indicators like the RSI show the stock is oversold.
- Decide when to exit based on your price target or when the stock hits overbought levels (above 70 on the RSI).
How to Manage Your Risk
Anyone can lose money in trading and hence, it becomes important to manage your risk. Irrespective of your experience, here’s how you can do it:
- Stop-Loss Orders
A stop-loss order automatically sells your stock if the price drops to a certain level, saving you from bigger losses.
- Position Sizing
Never put all your money into one trade. A common rule is to risk only 1-2% of your total capital on a single trade.
Step-by-Step Guide to Finding a Good Swing Trading Stock
Here is a simple step-by-step process to find a good swing trading stock:
Use a Stock Screener
Start with a stock screener to filter out stocks based on price, volume, and volatility criteria.
Check Technical Indicators
Once you have filtered your list, it’s time for you to look at technical indicators like RSI and moving averages. This will help you decide if the stock has good potential for a swing trade.
Look for Breakouts
As mentioned earlier, you must also consider breakouts. So, focus on stocks that are nearing a breakout or have just broken out of a resistance level.
FAQs On Swing Trading
1. Is swing trading effective?
Yes, swing trading is often effective. However, it has to be done with the right strategies and risk management.
2. Is swing trading safe?
When you are in the trading world, risk is a word you would often come across. So, like all trading, swing trading also comes with risks. However, if you use tools like stop-loss orders and manage your position sizes, then you can certainly reduce those risks.
3. Is swing trading good for beginners?
Of course, swing trading is great for beginners as it is less intense than day trading and allows you more time to make decisions and money.
Conclusion
So, swing trading is a great way to take advantage of short-term market moves, and Tradejini is here to help you get started. With real-time data, simple tools, and low fees, you can find and trade stocks confidently on the Tradejini CubePlus App.
Start your trading journey today!
It’s time to master swing trading and make quick gains.
Also Read: What is the India VIX Index? Meaning, Calculation, and Applications
