So you know about the best swing trade stocks. But do you know how to pick stocks for swing trading? It’s certainly not an easy decision to come to.
You have to be very careful in picking stocks to trade. There are many strategies you can follow. But not everything may suit you. Finding the most potential one during your trade can be a hard choice.
So, how do traders do it? We’ll discover the secrets with some valuable tips. Here are 5 ways you can pick stocks for swing trading.
3 Things to Consider when Choosing Stocks for Swing Trading
First thing first, you will need to consider some factors before choosing your stock to trade. They will help you make the best decisions. Here are 3 things to consider:
Consider Your Personality
Your personality will influence your choice a lot. For example, you may be 25 years old. And you might like video games. So, you are focused and follow actions. Thus, your choice of stock may be the ones that bring short-term profits.
On the other hand, a person of 65 years old may choose a low volatile stock.
Keep It Simple
You will find many strategies on the internet. But the best thing to follow is to keep things simple. Understand the habits and charts of the stocks. Focus on planning and consistency.
Test Your System
Testing is an important part of swing trading. A new strategy may be very successful. But it might not be tested, and that makes it very risky. It would help if you considered the following strategies that have been tested. This ensures that there is enough information available for you to decide.
Pick Stocks for Swing Trading: 5 Thumb Rules
You can always develop your own strategies. But there are common ones that you can follow. It is always a good start to follow these rules when choosing stocks for trading.
The Direction of the Market
The first you can follow is the market direction. It is a very standard strategy traders follow. So, what is the general rule here?
A stock may have a rising value in the market. The rule is that traders expect that the stock may keep on rising for an indifferent time.
You can follow quite a few things to find whether a stock is rising or not. You can check the company news, stock exchanges, or stock indices.
Stock Liquidity
Liquidity is a crucial indicator of stock prices, and it is the daily trade value of the stocks. It indicates the market demand of the stock.
What does stock liquidity mean, really? It means how frequently you can swing trade the stocks in the market. A high liquid stock is great for swing trading. It also has lower risks for traders.
The Trading Patterns
Swing traders will find different trade patterns of the stocks. Which one should you follow? You would want to invest in a stock that has a repetitive pattern.
A repetitive trade pattern is more reliable than others. You will be able to evaluate and forecast the returns on your investment. You can make small profits for a short period. Or you can go big and get a huge amount of money out of your investment.
Correlation and Volatility
Sometimes, you will be attracted to stocks that move away from the trend. They can seem profitable and highly lucrative. But a good swing trader will stay away from them.
This is because those stocks have a low correlation with other stocks. It means that they are risky and full of errors. They may be new currencies in the market. So, you will not find much information on them. And thus, they will look profitable initially.
Another thing to consider at the same time is the volatility of the stock. A volatile stock may be moving all over the place. They are risky and may only bring you profit for a short time.
So, the task is to invest in stocks that are not volatile. Those stocks should also have a positive correlation with other major stocks in the market.
Daily Volume
But you cannot only look at liquid stocks to trade. You will also need to consider the daily volume of the stock. For example, a minimum of 500,000 everyday shares is a good start.
This also brings the discussion of high-volume stocks. Stocks that have a high volume may become risky. So, you will need to exit the market during this time.
Conclusion
So, now you know 5 rules to pick stocks for swing trading. You cannot consider accepting some and forgetting the others. It is essential to consider all the rules and strategies. But remember to follow the 3 factors that make your decision better and easier.