How to pick the best stocks to swing trade?

Picking the best stocks to swing trade requires a lot of due diligence and hard work. If you want to be successful in swing trading stocks, then it is essential that you choose the right stocks to swing trade.

Swing trading is somewhat different from investing in stocks or day trading in stocks. With swing trading, you are essentially picking a stock to swing trade and hold the position over a few weeks to a few months.

As a result, there are some inherent risks that stock traders should be aware of.

A winning trade can lead to losses if you do not pay enough attention.

Over time, as you begin to swing trade stocks, you might find yourself holding multiple positions in different stocks.

It can be difficult to manage all these positions and different stocks. In such circumstances, it is important that traders pay attention to the best stocks to swing trade.

However, picking the best stocks to swing trade doesn’t start and end with a stock scanner. You need to pay attention to certain characteristics of the stocks that you want to swing trade.

In this article, we look at the ten things you need to bear in mind in order to pick the best stocks to swing trade. By the end of this article, you should be able to pick and choose the stocks that match the criteria.

This can help you to pick stocks that can give you the best returns.

Unlike day trading, where stock traders prefer volatility , with swing trading, traders need to pay attention to a number of other factors as well. After all, your eventual goal with swing trading stocks is to make money by picking the right stocks to trade.

Let’s take a look at the ten things that you should bear in mind when you want to swing trade stocks.

1) Focus on the price action, not the hype or the buzz!

It can be easy for traders to get lured into trading stocks that create a buzz or are hyped up very much. This can come in the form of new product announces, unexpected press releases or interviews.

While such stocks can create buzz for a while, it can just as easily get boring within a day or two. Such stocks often find themselves being mentioned in the financial TV networks or in financial journals.

They may even make for big headlines! This is perfectly fine! But such stocks are not suited for swing trading.

While there can be a lot of news coming out, the moment the “excitement” starts to fade away, the stock can simply return back to its range and trade sideways.

A good way to filter out such stocks is to look at its beta. Beta, in the stocks markets is defined as a measure of the volatility of a stock in relation to the broader market. In general, the broader market carries a beta of 1.

Individual stocks are then assigned a beta in relation to this broader market or the market index. A beta above 1 means that the stock in question tends to move higher than the market and a beta below 1 means that the stock in question moves lower than the market.

Figure 1: Stocks with high beta

A stock with a beta of 1.5 means that for a one percent move in the main benchmark, index, a stock with a beta of 1.5 will move 1.5%.

You can find high beta stocks by looking at any free stock scanning tool. When choosing high beta stocks, it is important to focus on the large cap stocks.

Despite the benefits of using beta, fundamental investors cite shortcomings as beta is measured over time and thus, when a stock tends to get too volatile or less volatile, it takes a while before the beta can change.

2) Keep track of the developments on the company

Swing trading stocks requires holding a position over a period of time. This can span from weeks to months. During this period, stocks can change direction, establish trends and what not. Most of these changes happen as the price of the stock adjusts to new information that is coming out.

Therefore, it is always a good habit to keep a list of stocks that you are currently trading and keep track of the developments in the stock. This can range from earnings release to the product developments.

There are a number of ways you can do this. For one, you can focus on the news that is published on the financial TV networks. Alternately, you can also set up a google alert for the stocks that you are currently trading.

This will give you automatic news releases on the stocks of your interest as and when there are any new information that is coming out. This will allow you the chance to see if your positions are at risk.

Now a days, with social media such as Twitter being capable of moving the markets, it is important that you too have a twitter account and follow the company leaders. From the President of the United States to the CEO of Tesla, Elon Muck, just about every big name is active on Twitter.

Figure 2: Elon Musk Tweet about Tesla

A single tweet has the power to change the direction of the market.

Below is an example of the TSLA (Tesla) stock and how it reacted after the famous tweet was made by the CEO, Elon Musk.

Figure 3: TSLA Stock Reaction to Musk’s tweet

3) Pick high volume, large cap stocks! But penny stocks can work too

When it comes to picking the best stocks to swing trade, you should play it safe and stick to the big market cap stocks and those with high average daily volume. Liquidity in the stock markets is important, not just for day traders but also for swing traders.

However, many traders tend to be drawn to trading penny stocks or small cap stocks. This is understandable because stocks from such categories are highly volatile (with high beta). They can give strong gains or losses.

But it also comes at a risk. When you trade low volume stocks, there is a good chance that your order fills are done either partially or at a bad price. Furthermore, the small cap and penny stocks are prime targets for pump and dump schemes.

Pump and dump scheme is nothing but large volume of orders that quickly moves the prices around. It lures gullible swing traders into taking a position only to see the direction being reversed.

While small cap stocks and those that are traded on a reputable exchange have some checks in place to prevent this from happening, the fact is that they are equally risky ones to trade.

In order to be successful with trading penny stocks or those under $5 in price, it is best that you do a thorough research and take a position only when you are sure, and your work tells you that the stock has the potential to move.

4) Focus on the holding time for the stocks

Swing trading stocks requires you to hold the position open over a few weeks. This can make the stocks vulnerable to news that you never expected. Therefore, it is important that you already have a plan in mind.

If you think that a stock has a potential to make a 15% gain in two weeks, it makes a better bet rather than trading a stock that can show a 25% gain in four weeks. The best way to identify what your holding time is, analyze your past trading history.

If you are relatively new to swing trading stocks, then focus on trading stocks with a one-week time frame and then slowly look to swing trading stocks where the holding time gradually increases.

At the same time, you also need to focus on the amount of risk that you put into the stock. Having a good stock broker is important so that your orders are filled at the best possible price.

5) Follow the leaders and the laggards

Every industry or sector in the stock market has its own set of leaders and laggards. Quite often, some of the best performing stocks tend to put up a better performance compared to others within the same sector. This usually depends on a number of factors, but aspects such as market cap and volume do play a role.

A leading stock in a sector is one that tends to move the most. This could be for a number of reasons. For one, such leading stocks can be due to the fact that they dominate the sector they are in.

At the same time, such leading stocks are also susceptible to big losses. To be able to swing trade stocks successfully, you need to have the right balance of leading and lagging stocks. Lagging stocks are usually slow and often play catch up.

Lagging stocks are also often cheaper compared to the leading stocks. Focusing on stocks that are relatively weaker than the market and have lower valuations can be ideal to swing trade such stocks.

6) You can also catch the trends at a later stage

One of the key things about picking the best stocks to swing trade is basically to catch the trend and ride it for a certain period of time. Therefore, you do not need to be early to catch a trend.

But at the same time, you should not be too late either. The best place to trade a trend is when it is well established, but you can see that there is still some more room to grow.

Swing trading such stocks will give you a good advantage because you are trading in the direction of the trend and there only to capture some profits from this bigger trend. You can see that you will be more successful when you do not get too greedy in the markets.

Sometimes, you will find stocks that tend to be correcting. However, the overall long term trend is still strong. Catching such stocks are a great way to buy the dip in the longer trend.

7) Don’t attempt to call a top or a bottom in the price

One of the favorite pastimes with many traders is that one simply gets tempted to call a top or a bottom in a stock. This is akin to catching a falling knife. This is one of the biggest ways you can lose all the money you made in a moment.

A stock, which for example makes a big gap after earnings can often be a strong candidate for trading. However, sooner than later, you will see that the stock will retrace and fill the gap leaving you with a big hole in your pocket.

One of the reasons why traders tend to call tops and bottoms in price is because they want to get in early. While this looks like a good strategy, the fact remains you will actually end up risking more money than making any money.

8) Watch the short interest

Stocks with short interest make for a good candidate for swing trading. Such stocks have the potential to make some big moves in the markets. This can lead to some big profits within a short span of time and it fits in well with swing trading of stocks.

Figure 4: Stock scanner with float short volume

Short interest in stocks is nothing but a measure of the number of shares that are sold short. These short positions have not been covered or closed. Short interest is usually represented as a number or in percentage terms. It is also known as the short interest ratio.

The short interest is basically an indicator of the general sentiment in the stock. The short interest percentage is calculated by dividing the number of stocks with short interest and the total outstanding shares.

Short interest will tell you how bullish or bearish a stock is. Stock exchanges report the short interest regularly, thus it is a good metric to follow to pick the best stocks for swing trading.

9) Track the market and economic cycles

The economy and the market in general tends to move in cycles of boom and bust. Thus, it is important that you know at which point in the cycle the markets you are in. Some stocks tend to perform badly during economic downturns, while some stocks are known to perform well in such circumstances.

Looking at the sectors such as utilities and high growth stocks is a good option for you when deciding on the best stocks to swing trade. Utility companies tend to have a steady pace of growth.

Thus, when the market is in a downturn, it is essential that you not just pick a random stock based on volatility but also understanding which sector that stock falls under.

10) Keep track of the regulatory news

It is also in your best interests to keep track of regulatory news. Government regulations can play a big role and they can impact the stock’s performance. For example, in the recent few years, Marijuana stocks were seen making some big moves.

Figure 5: SMG, Scotts Medical Group marijuana stock rally

This came on hopes that governments in Canada and some in Europe would make medical Marijuana legal. As a result, the prices of such stocks exhibited high growth as seen in the chart above.

To be able to successfully swing trade stocks, it is important that you keep track of such news which will allow you to then pick the stocks that are positioned for a breakout .

In conclusion, picking the best stocks to swing trade is not a science but an art. The only way you can perfect this art is by practice and keeping track of what you do and learning from your mistakes.


About Me

I'm Mike Semlitsch the owner of My trading career started in 2007. Since 2013 I have helped thousands of traders to take their trading to the next level. Many of them are now constantly profitable traders. 

The following performance was achieved by me while trading live in front of hundreds of my clients:

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