Swing trading is one of the most popular forms of active trading, where stock traders look for short and medium-term opportunities using various forms of technical analysis.
If you’re interested in swing trading, you need to be familiar with the technical analysis and the best swing trade stocks.
In this post put together by the Wealth Circle, our focus will be on listing the best swing trade stocks.
Here’s what to expect in this article.
What Is Swing Trading?
Swing trading is a trading style that focuses on profiting off changing trends in price action over relatively short timeframes.
According to Investopedia, swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks.
Swing traders will try to entice upswings and downswings in stock prices. Positions are typically held for one to six days, although some may last as long as a few weeks if the trade remains profitable.
Swing traders use technical analysis to identify patterns, trend direction, and potential short-term changes in trends.
What Are The Features To Look For In Swing Trading?
There are key features to look out for when searching for swing trading stocks.
For instance, paying attention to debt levels and price-earnings ratios will definitely be of no value because swing trading is more of short tem than long term.
Here’s a list of what to look out for if you want to get into swing trading:
Most swing trades commence by discovering a catalyst that could trigger a powerful move in a stock. This could be a clinical trial in a pharmaceutical company or even the removal of an executive or CEO.
In Swing trading, you need to consider the volume because big moves in short time frames are impossible without significant volume in the stock.
Unarguably, lightly-traded stocks can be coerced into big moves without much volume. But in the majority of your swing trades, look for stocks with more volume than usual — it matters most.
Great volume begets great volatility. Volatile stocks are good swing trading stocks because swing traders profit from large, short-term moves. A stock trading in a tight weekly range is likely not to produce a ton of opportunities for profit. But if 5% moves are occurring daily, you’ll find a plethora of chances for swing trades.
Swing Trading Strategies For Stocks
Before you decide to venture into swing trading, there are five strategies you should be familiar with. These strategies are to be applied to the stocks you are interested in to look for possible trade entry points.
You can also use tools such as CMC Markets’ pattern recognition scanner to help you recognize stocks that are showing potential technical trading signals.
Here are the swing trading strategies for stocks
#1 Fibonacci retracement
The Fibonacci retracement pattern can be used to help traders spot support and resistance levels, and therefore possible reversal levels on stock charts.
Stocks often tend to retrace a certain percentage within a trend before reversing again, and plotting horizontal lines at the classic Fibonacci ratios of 23.6%, 38.2% and 61.8% on a stock chart helps to show potential reversal levels. Traders often look at the 50% level as well, even though it does not fit the Fibonacci pattern, because stocks tend to reverse after retracing half of the previous move.
A stock swing trader could enter a short-term sell position if the price in a downtrend retraces to and bounces off the 61.8% retracement level (acting as a resistance level), with the aim to exit the sell position for a profit when the price drops down to and bounces off the 23.6% Fibonacci line (acting as a support level).
#2 Support and resistance triggers
Support and resistance lines represent the foundation of technical analysis and you can build a thriving stock swing trading strategy around them.
A support level shows a price level or area on the chart below the current market price where buying is strong enough to overcome selling pressure. As a result, a decline in price is stopped and price turns back up again. A stock swing trader would look to enter a buy trade on the bounce off the support line, placing a stop loss below the support line.
Resistance being the opposite of support represents a price level or area above the current market price where selling pressure may subdue buying pressure, causing the price to turn back down against an uptrend.
In this situation, a swing trader could enter a sell position on the bounce off the resistance level, placing a stop-loss slightly above the resistance line.
A key thing to remember when it comes to incorporating support and resistance into your swing trading system is that when the price hits a support or resistance level, they switch roles – what was once a support becomes a resistance, and vice versa.
#3 Channel trading
This strategy helps you identify a stock that’s displaying a strong trend and is trading within an channel.
If you have plotted a channel around a bearish trend on a stock chart, you would consider opening a sell position when the price bounces down off the top line of the channel. When using channels to swing-trade stocks, it’s important to trade with the trend.
#4 10- and 20-day SMA
Another of the most popular swing trading techniques involves the use of simple moving averages (SMAs).
SMAs smooth out price data by calculating a continually updating average price which can be taken over a range of specific time periods, or lengths.
For instance, a 10-day SMA adds up the daily closing prices for the last 10 days and divides by 10 to calculate a new average each day. Each average is connected to the next to create a smooth line which helps to cut out the ‘noise’ on a stock chart. The length used (10 in this case) can be applied to any chart interval, from one minute to weekly. SMAs with short lengths react more quickly to price changes than those with longer timeframes.
With the 10- and 20-day SMA swing trading system you apply two SMAs of these lengths to your stock chart. When the shorter SMA (10) crosses above the longer SMA (20) a buy signal is generated as this indicates that an uptrend is underway. When the shorter SMA crosses below the longer-term SMA, a sell signal is generated as this type of SMA crossover indicates a downtrend.
#5 MACD crossover
The MACD crossover swing trading system helps to identify opportunities to swing-trade stocks. It’s one of the most popular swing trading indicators that’s used to determine trend direction and reversals.
The MACD consists of two moving averages – the MACD line and signal line – and buy and sell signals are generated when these two lines cross. Once the MACD line crosses above the signal line a bullish trend is shown and you would consider entering a buy trade. If the MACD line crosses below the signal line a bearish trend is likely, suggesting a sell trade.
If this happens, you are expected to wait for the two lines to cross again, creating a signal for a trade in the opposite direction, before they exit the trade.
The MACD oscillates around a zero line and trade signals are also generated when the MACD crosses above the zero lines (buy signal) or below it (sell signal).
What Are The Best Swing Trade Stocks?
Swing trading is a strategy that focuses on capitalizing on smaller gains in short term trends and cutting losses quicker. The gains might be smaller, but on a consistent drive, it compounds and blows into an excellent return.
Here’s a list of the best swing trade stocks you can bank on:
Stanley Black & Decker (NYSE: SWK)
Stanley Black & Decker Inc. is a company that manufactures hand and power used to repair homes, vehicles, and electronic devices. It owns and operates several brands like Stanley, DeWalt, Black + Decker, Craftsman, Porter-cable, Bostitch, and Paladin.
The manufacturing stock has a marketing value of $27 billion and an EPS of $5.25. It has an annual dividend yield of $2.80 per share. Stanley Black & Decker has high liquidity and an average daily trade volume of 459,000 shares. It generated revenue of $ 14 billion in 2019.
The swing trade range 52 weeks.
Caterpillar (NYSE: CAT)
Caterpillar inc. is one of the largest manufacturers of construction and mining equipment. This equipment includes diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.
The construction stock has a market value of $87 billion and an EPS of $7.45. It has an annual dividend yield of $4.12 per share. Caterpillar has high liquidity and trades greater than 2.1 million shares per day and generated revenue of $53 billion in 2019.
Bank of Montreal (NYSE: BMO)
Bank of Montreal is a financial firm that provides services like; commercial banking, wealth management, and investment planning. It is the 8th largest bank in North America with over 12 million customers.
The financial stock has a market value of $46 billion and has an EPS of $6.14. It has a 52 week low of $38.31 and a 52-week high of $79.33. Bank of Montreal has an annual dividend yield of $3.21 per share.
It has high liquidity and trades more than 44,000 shares per day. It generated revenue of $25 billion in 2019.
Carnival (NYSE: CCL)
Carnival corporation cruise line stock has been on a speedy ride since the outbreak of the pandemic. Because revenue has completely evaporated, the stock is currently down more than 60% since February.
Just like other stocks on the list, CCL has a beta of 1.98, a short interest of over 12%, and more than 75 million shares traded daily on average. The stock generates 5% after every session.
Kohl’s (NYSE: KSS)
Kohl’s is a department store retailer with over 1,000 locations in the U.S. With Kohl’s stock down nearly 60% in the last 3 months.
Kohls has all the features needed for a swing trade. It has a high beta of over 15% short interest and approximately 14 million shares traded daily on average.
In swing trading, traders capture small moves within a larger overall trend. The most important of it all is that swing traders aim to make a lot of small wins that add up to significant returns.
Do well to make the best out of the information above. Remember there’s no hundred million without hundred.