Best Swing Trade Stocks and How To Find Them

9 Minutes
Updated May 9, 2024 03:03
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Swing trading has been gaining popularity as a way to make money in the stock market. It involves using technical analysis and strategies to identify potential entry and exit points for investing in stocks, aiming to capture short-term gains over several days or weeks. While the potential rewards are high, it’s essential to be aware that swing trading is not without its risks.


Estimates suggest that 90% of swing traders fail to make money, meaning most traders either break even or lose money. This means the success rate for swing trading is around 10%, which can be discouraging for new traders. However, swing trading can be profitable with the proper knowledge and strategies.


In this article, we will explore, what are the characteristics and how to find the stock for swing trading

What Is Swing Trading?

Swing trading is a style of trading that attempts to capitalize on short-term price movements to generate profits. It involves holding positions in stocks or other instruments for more than one trading session, but usually only for a few weeks or even months. It is usually based on a technical analysis of price trends and patterns.

The goal of swing trading is to determine where an asset's price is likely to go next, enter a position based on that prediction, and then get a piece of the profit if the prediction comes true. Swing traders may also use fundamental analysis to help them decide what to do when trading, but this is only sometimes necessary.

Successful swing traders typically want to make small profits on each trade rather than waiting for large price movements. They tend to focus on finding a few successful trades that produce consistent returns rather than chasing after volatile stocks. Additionally, swing traders often employ risk management strategies such as stop losses or other hedging techniques to protect their investments.


Why Swing Trade?

As compared to other styles of trading such as; Day Trading, or Position trading, Swing traders typically want to make small profits on each trade rather than waiting for large price movements. They tend to focus on finding a few successful trades that produce consistent returns rather than chasing after volatile stocks. Additionally, swing traders often employ risk management strategies such as stop losses or other hedging techniques to protect their investments.


The advantages of swing trading include quickly recognizing potential profits and risk/reward ratios, and the flexibility and convenience of using technical and fundamental analysis. Swing traders may also use a variety of charts, from daily to hourly or 15-minute intervals, to find precise entry and exit points.


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How To Find The Best Stocks For Swing Trading

When looking for swing trade stocks, it's best to look for companies that have been around for a while. This is the case because you're looking for something predictable. Examining the actual stock chart based on it is better. Finding patterns in things makes life much simpler.

Find anything that continuously rises in waves; that's much better. Swing trading works well with strong corporations. They typically have more market experience and are older. These powerful, upward-climbing waves are more common in well-known corporations with significant profits and larger market values.

Neither sectors nor fundamentals are crucial for swing trading. Technical indications are more important than price ratios and debt loads because this isn't a long-term investment. It may be a profitable swing trade even if a company has a ton of long-term debt and minimal cash flow. This is a key point, because the benefit of practicing Swing trading is that you need not only target price appreciation, you can do shorting as well.

5 Popular Stocks To Swing Trade

Before we discuss which stocks are best for swing trading, we want to remind you that the stock market is not static. Therefore, it's best to trade based on what the market is really doing.


1. Apple (NASDAQ: AAPL)


Apple stock presents a great opportunity to swing traders. It is a financially stable and reliable stock. Also, the company's finances have usually been pretty stable, even during economic downturns, thanks to its ecosystem lock-in, the high demand for its products, and its ability to sell more expensive products to existing customers.


2. Microsoft (NASDAQ: MSFT)


Microsoft is a great option for swing trading. It posted an impressive milestone, with the Microsoft Cloud surpassing $100 billion in annualized revenue for the first time ever. Microsoft is still a good stock for swing traders who want to take advantage of its growth potential in the coming year. It has strong financials and still has room to grow.


3. Facebook (NASDAQ: META)


Facebook is an ideal stock to consider for swing trading. It has experienced steady growth and financial stability over the past several years. This is also a sign that the company is doing well and will probably continue to do so in the future. As a result, swing traders can rely on Facebook for consistent returns. 


4. Caterpillar (NYSE: CAT)


Caterpillar Inc. is an ideal stock for swing traders due to its stability and financial strength. Its four divisions – construction industries, resource industries, energy and transportation, and financial products – provide a diverse portfolio of products that are highly sought-after by businesses. In 2022, Caterpillar achieved total revenues of $59.4 billion, making it the leading manufacturer and provider of construction and mining equipment around the world.


5. Netflix (NASDAQ: NFLX)


Netflix is another great option for swing traders. Netflix has seen remarkable growth in recent years. As of January 2023, Netflix had more than 230 million subscribers all over the world and continued to grow.


This impressive growth shows that the company is committed to giving its customers good streaming services and content. As Netflix keeps coming up with new ideas and adding more services, it could grow even more quickly in the years to come. With a wide library of content and numerous subscription options.


Features To Look For In Swing Trade Stocks

Swing trading is an exciting and potentially profitable way to invest in the stock market. With swing trading, you can take advantage of short-term price movements and capitalize on opportunities that may not be as evident in long-term investments. There are several features that can help you find the best stocks for swing trading.


1. Catalyst


When swing trading, it's important to consider catalysts. These could be news about an upcoming event, potential changes within a company, or credible rumors. Catalysts can help identify stocks with short-term potential for price movements that may not be as obvious in long-term investments. By recognizing these catalysts and acting fast, swing traders can potentially profit. To find the best catalysts for swing trading, keep up with the news and do your research.


2. Volume


To succeed in swing trading, finding stocks with high trading volume is crucial. High-volume stocks indicate strong trade potential and can guide entry and exit points. Low-volume stocks may be riskier but can still be profitable if calculated correctly. Nonetheless, high trading volume remains a key factor for successful swing trades.


3. Volatility


Volatility is an important factor to consider when swing trading. High-volatility stocks are generally more profitable in the short term since they tend to experience bigger price fluctuations. By recognizing and capitalizing on these changes in the market, traders can make big gains in a short amount of time. It is important to be aware of the risks of trading volatile stocks, as they can also lead to large losses.


4. Correlation


Correlation plays an important role when it comes to investing. Correlated stocks affect each other, so if one loses value, the other likely will too. To mitigate risk, avoid selecting closely correlated stocks. A good strategy is to diversify across different industries and companies offering unrelated products. This spreads out investments and reduces risk effectively.


5. Relative Strength


Relative strength is useful to identify market-wide trends and determine which stocks are outperforming. By looking at a stock's relative strength compared to another stock, its industry, or the market index, traders can measure how it performs against other stocks and make informed decisions about which stocks to buy or sell short. Grouping potential trades by relative strength gives an overall sense of the market, allowing traders to find the best opportunities based on their strategy.


Conclusion

Swing trading can be an effective way to make profits in the stock market. It requires careful research and analysis of the markets, as well as knowledge of how to set up and manage trades. With the right stocks and strategies, swing trading can be a great way to generate returns on your investments.


With the right guidance and education, anyone can become a successful swing trader and beyond. If you're ready to do some research and take some calculated risks, swing trading might be the right choice for you.


However, it's important to remember that investing always comes with risks, so make sure you understand the potential rewards and losses before making any investments.


Good luck!

FAQ
How do I choose the best stock for swing trading?
The best stock for swing trading is determined by analyzing several factors, such as catalysts, volume, volatility, correlation, and relative strength. To maximize your chances of success, it’s important to research and keep up with the news, identify stocks with high trading volume, consider their volatility and correlations, and use relative strength to evaluate market-wide trends.
What is the ideal target for swing trading?
The ideal target for swing trading is 5-10% profits per stock. In order to take advantage of short-term price changes, this strategy requires traders to hold their positions for less time than long-term investors. Swing traders benefit from taking advantage of these small price movements and capturing quick profits, even though these returns are typically lower than those achieved by long-term investors.
Is swing trading stocks high-risk?
The risk of swing trading depends on the trader. It's not always high-risk, but it does involve more risk than investing for the long term. Risk management is important for swing trading to work, so it's important to learn about the strategies and techniques before you start. Swing traders can make money and keep their losses to a minimum if they use the right strategy.

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

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