How to Pick Stocks for Swing Trading

Swing trading is a method to capitalize on short-term price movements –from two days to two weeks — of stocks or other securities. The method relies on technical analysis, the study of previous stock behavior to predict future prices. Technical analysis doesn’t rely on the fundamental information about a company’s financial condition. The easiest way to find stocks for swing trading is to use stock screening software.

Online Stock Screens

An Internet search quickly reveals a number of available online stock screeners. These programs identify stocks that match one or more sets of criteria. The screeners usually provide many built-in criteria sets to match various trading strategies and also have facilities for users to build their own criteria. Typically, a screener offers very basic information but charges users a subscription fee to access the screen’s full capabilities. You can also buy screening software to run on your own computer, but you will also need to subscribe to a data source for this software.

Swing Trading

Swing trading involves selecting stocks that tend to move in repeating cycles of advance and decline. The area of resistance is a line connecting the peaks of advances, whereas the line connecting the troughs of decline is a stock’s support area. The distance between the two lines is a stock’s price channel, and depending on the channel’s slope, the stock is said to be in an uptrend, downtrend or flat trend. A swing trader tries to identify stocks to buy or sell depending on whether they follow a cyclic price pattern and where they are within their price cycles.

Selection Strategies

Swing traders can choose among many technical strategies to pick stocks. One type of strategy, called charting, relies on visual recognition of price patterns and identification of target prices to buy and sell stocks. For example, a trader might only buy stocks in an uptrend and only after the stock price rises by a certain amount above its support area. Other strategies, such as oscillators and relative strength indexes, rely on mathematical relationships among stock prices. Screening software can isolate and identify stocks that match dozens of different trading strategies.

Additional Criteria

In some forms of swing trading, traders incorporate fundamental information to help make decisions. A trader might use a stock screener to identify a list of candidates, but then winnow the list based on a stock’s fundamentals. For example, the trader might avoid stocks of companies that are about to announce quarterly earnings, because any surprises could disrupt the stock’s cyclic pattern. Another example might be to avoid buying a stocks that, despite favorable technical indications, is selling at a high price-to-earnings ratio, meaning that the stock might be too expensive to maintain its cyclic pattern.


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Copyright 2017 Eric Bank, Freelance Writer