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Learn Swing Trading Stock Selection

26 Oct, 2022
9 mins read

I believe most of us are familiar with the adage, "The trend is your friend until the end when it bends." Assuming your awareness of this, swing trading and all of its ramifications must be well-known to you. Don't worry if you are unaware of it or only familiar with it; this blog will be helpful to you, as we will explain in detail.

Swing trading is nothing more than a trading strategy that enables a trader to realize gains (short and medium-term) on any financial instrument or stock for a predetermined time frame, such as a week or two. The most crucial aspect of swing trading is selecting the appropriate stock; to do so, a trader must use technical analysis.

Hold on though, as there should be no misunderstanding between swing trading and day trading. The primary distinction between the two trading types is holding time. Yes! In contrast to swing trading, where positions can be taken forward and held for weeks or even extended to a month, all positions in day trading are closed within a single trading day.

How Does Swing Trading Work?

This trading method entails maintaining a short or long position for a predetermined period. Swing trading entails risk as price gaps between trading days are common, and the next trading session often starts at a completely different price.

The primary goal of swing trading is to gain from a potential price movement. Traders use this strategy on volatile as well as sedate stocks. When buying either type, the goal is to anticipate a change in the asset's price, act quickly to buy, and profit when the stock market actually experiences the anticipated change. It is basically preempting a move, before the other market participants get in on the band wagon.

Swing trading shouldn't be confused with day trading, which usually takes place in a fast-paced environment that is very overwhelming for newbies. Swing traders, however, favor transient trends over long-term ones. This makes swing trading help in maintaining a perfect balance between long-term investing and day trading. Now, the question that pops up is – are swing traders consistently successful?

Can Swing Traders Beat the Market or Not? – the Pros and the Cons

It helps identify relatively calm stocks when looking for the ideal stock for a swing trade. This implies that they don't show excessive price fluctuations, also known as volatility. Let me tell you that the best stock performance is when prices move steadily up or down without experiencing extreme volatility.

Since swing trading is entirely based on technical analysis, there can be times when swing traders can beat the market with accurate predictions. But sometimes, they can't stand the losses when the stock prices run helter-skelter. So, is it wise to practice swing trading? Or should one stick to the draconian methods of trading? Let's burst the bubble of apprehension by tracing down the pros and cons of one of the most popular forms of active trading – swing trading.


1. Swing Trading Requires Less Time:

Swing trading requires less time as compared to day trading, as mentioned above. The Majority of the time is spent on identifying the right stocks for swing trading and being prepared to act accordingly (either to go long or short) during trading hours.  

2. It tends to deliver exorbitant gains:

The potential gains from swing trading can be significant for a trader or investor. Rather than being locked into a prediction, you have plenty of room to run if the asset price moves halfway and ends up in losses. By using swings to maximize short-term profits, a trader aims to capture the market in its entirety.

3. The trading process is simple:

Since swing trading is entirely based on technical analysis, the trading process remains lucid. Hence, beginners are recommended to dampen their feet in the turbulent market waters via swing trading. Not a beginner? Well, don't consider that swing trading is not for you. It aims at offering even more significant gains to professional traders.

So, swing trading can be a rewarding strategy. But it is the rule of the money and financial markets that "with rewards comes risk". Let's consider the risk associated with this trading strategy.


1. Potential Gains Come With Serious Risks:

There is no iota of doubt that in a strategy that is whole-solely based on technical analysis, the associated risks increase tremendously.

2. Encashing Opportunities and Identifying the Red Flags Become Difficult:

Since swing trading sometimes involves extending the holding period, it is riskier. As a result, traders practicing swing trading sometimes dodge lucrative opportunities since most of the trade positions can change overnight and often fail to spot red flags.

3. Past Trends Do Not Necessarily Give the Correct Picture:

Most swing traders refer to previous patterns and past trends of asset's prices. They trace down movements that have occurred and are bound to recur. However, these trends might not provide a correct picture. Sometimes the market runs antithesis to what has happened in the past, which results in grave losses. History necessarily doesn't repeat itself. This makes it more difficult than ever to predict a potential movement in the asset price that is likely to materialize.

While being risky and challenging to implement, if learned ardently, it can fetch enormous gains for a trader or an investor.

How to Pick Stocks for Swing Trading?

Experts of the financial markets and swing trading, in general, suggest the following thumb rules or strategies that can be beneficial in picking stocks for swing trading:

1. Keeping an Eye on the Direction in Which the Market is Going.

If an asset price rises in the market, it will continue to rise, assuming ceterius paribus. Meaning, all things remaining constant, the price of the stock can continue to rise. So, keeping track of such stocks and investing when the time is right is recommended. Now, to keep a record, you can stay up to date with company news, follow the stock market, read newspapers on finance, etc.

2. Spot the Signal.

While swing trading, one must watch out for specific signals that indicate buying or selling. As a result, markets are often observed, and technical analysis is derived for various sectors and stocks. Out of these, outperforming stocks are sieved out. This process is termed as screening of stocks.

3. Recurring Trade Pattern.

Although they cannot be true every time, experts still feel that past trade patterns have a role to play. Subsequently, one of the thumb rules is to consider past trends, and look at them through the lens of reliability. Many times, when the trade is slightly in favor of what has happened in the past, one can make some profit amidst the price gap.

4. Liquidity:

A crucial metric for swing traders is liquidity. A stock's daily trading volume provides insight into market demand. A stock's liquidity level indicates how frequently it trades on the market. Swing traders typically prefer stocks with high daily trading volumes, as they are highly liquid, less risky and help the trader in increasing or reducing the position size quickly.

5. Performance:

This compares a stock's performance to that of other stocks in the same industry. Finding the sector's strongest stocks that have outperformed all the sector indices is the logical course of action.

6. Reliable data:

Stocks that frequently trade in patterns tend to draw swing traders because they are viewed and regarded as more reliable. In a similar vein, stocks of companies that are frequently covered by numerous news sources during trading hours are attractive. Experienced traders typically execute lower-profit trades when news causes a stock to break a trading range, or wait for less professional traders to exit the stock before concentrating on the stock's 'normal' trend.

Final Words:

All swing trading-related queries, such as how to pick the best stocks for stock trading, were addressed in this blog but still if you are looking for the right place to understand the market, visit School of Stocks. After addressing the query, let's also recognize that swing trading entails higher risk than day trading since the holding period is longer. In order to identify trading opportunities as well as potential red flags, you need a strong strategy. The strategies described in this article aren't the only possible solutions for selection of stocks for swing trading. Each trader needs to identify a strategy that works for them. Swing traders search for stock trends, which can unfold during several days. Swing traders use several mantras, similar to day traders, as the foundation of their overall trading strategy. These influence the stocks one should purchase.

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