What Is Swing Trading?

Swing Trading is a trading style used to capture gains in a stock over a period of a few days or weeks.

Swing Traders take advantage of the price action due to:

• Strong stocks that display high relative strength versus the overall market
• Stocks hitting new 52-Week Highs
• Volume Breakouts
• Earnings Surprises
• Strong Earnings and Revenue Growth rates
• New Product Releases

Pros

• Perfectly suited for the end of the day trader
• Traders can simplify their trading plan and take advantage of price moves

Cons

• Swing traders tend to lose out on the long-term trends of a stock

Things to know

Learn about all the Swing Trading Vocabulary here.

Swing Trading Strategies

Setup 1: Stocks Making New Highs

Stocks making new 52-Week Highs are likely to keep going up.

The built-in scan Price: Near 52Week Highs helps you discover these stocks.

Setup 2: Gap Breakout on Heavy Volume

Stocks that breakout on heavy volume are strong candidates for swing trades. These breakouts may be due to:

• Earnings announcements
• New product announcements
• Biotech Phase Trial success, M&A news etc

The built-in scan Price: Gappers 4% and above today uncovers these stocks.

Setup 3: High Relative Strength of the Stock versus the Overall Market

Relative Strength Trading is our go-to setup. Track the Relative Strength versus the overall market or sector and trade only the strongest stocks.

The built-in scan Relative Strength: Buy strong stocks to find these stocks.

Setup 4: Pullback Setup in the Strong Trending Stocks

Stocks that have trended for a while tend to pull back and resume their trend.

Setup 5: Top Industries and Top Sectors

Monitoring sector and industry momentum uncovers leaders in the market.

Everyday, you can monitor the Market Vitals page to find the best performing sectors and industries.

How Do I Find the Best Stocks for Swing Trading?

The key to finding the best stocks to trade is to understand both the Price Action Metrics and the Key Stock Fundamental Metrics.

Price Action Metrics

Understanding the Price Action metrics is not about a deep dive into the technical indicators. It is about understanding the only thing that matters: price.

Below are the key price-related metrics that we monitor:

• Relative strength - Compare the performance of a stock with respect to the overall market over a certain period. Example: 26 weeks is what is used in StockMine.
• Relative Strength vs. Sector - Compare the performance of a stock with respect to the sector over a certain period. Example: 26 weeks is what is used in StockMine.
• % 52-Week High - The distance of a stock from its 52-Week High. If the number is close to the 52-Week High, the stock is making new highs.
• Year-To-Date (YTD) Returns - This is the return in the stock in the current year. Stocks making high YTD returns tend to be strong swing candidates.
• Year-To-Date (YTD) Return vs. Industry Average YTD Return - This displays stocks that are growing at a faster rate than their Industry Average YTD Return.

Fundamental Metrics

The company fundamentals need to be analyzed over multiple quarters to find strong stocks.

Growth Metrics

• Revenue Growth Rate QoQ
• Revenue Growth Rate YoY
• EPS Growth Rate QoQ
• EPS Growth Rate YoY

Profitability Metrics

• Operating Margin Growth Rate QoQ
• Operating Margin Growth Rate YoY
• Net Profit Margin Growth Rate YoY
• Net Profit Margin Growth Rate YoY
• Return on Equity Growth Rate YoY
• Return on Equity Growth Rate YoY

You can use a combination of these metrics to filter the best stocks that match your trading ideas and style.

Trading Plan

A Trading Plan is an essential ingredient to trading success.

The components of a Trading plan are:

• Methodology
• Risk Management
• Journaling

Methodology

The methodology is everything that goes into your process of finding stocks to trade.

• Select trading system and setup
• Choose your timeframe
• Identify which type of stocks to trade
• Define entry and exit targets

Risk Management

"The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system." - Ed Seykota

• A 10% loss requires an 11% return to get back to break-even
• A 20% loss requires a 25% return to get back to break-even
• A 50% loss of capital needs a 100% return to get back to break-even

Risk Management is the key to long-term survival in the swing trading game.

Define your Stop- Loss BEFORE you enter a trade. Every StockMine Rating comes with a Stop Loss recommendation.

Conclusion

Swing Trading is an excellent alternative to Day Trading stocks and builds your account slowly. Developing an edge is crucial for swing trading success!