How to Select Stocks for Swing Trading - Complete Guide

Swing trading is a popular trading strategy, especially among beginners in the Indian stock market. It involves taking advantage of short-term price fluctuations in stocks to make profits.

But one of the most critical aspects of swing trading is knowing how to find the right stocks. Selecting stocks that have a higher probability of swinging in price, provide ample opportunities for profits.

Art of Swing Trading Stock Selection

The success of your swing trading strategy largely depends on your ability to select the right stocks. But how do you identify these potential gold mines? Here are some tips to guide you:

Look for Stocks with Volatility

The key thing to look for while dealing with how to find swing trading stocks is volatility. It is key in swing trading.

The more a stock price fluctuates, the more opportunities there are for buying at a low price and selling at a higher one. Use financial sites to filter stocks with high volatility.

Source : TradingView

Use Technical Analysis

Technical analysis involves studying price patterns and trends on stock charts. Key indicators that swing traders should understand include simple moving average, RSI (relative strength index), and volume.

Consider the Trading Volume

The trading volume in stock market indicates how many shares of the stock were traded during a specific period. A higher trading volume suggests more trader interest and can lead to larger price swings.

Sector Analysis

Some sectors may exhibit more price swings than others, depending on the current market conditions. Monitoring sector performance can provide insights into potential swing trading opportunities.

Understanding Swing Trading

Swing trading involves buying and selling stocks over a period of days to weeks, capitalizing on the ‘swing’ or change in prices.

The aim is to catch a chunk of a potential price move. Unlike Intraday trading, swing trading doesn’t require glued attention to minute-by-minute market movements, making it more manageable for part-time traders.

The first step in swing trading stock selection is understanding what makes a stock a good candidate for swing trading.

Step-by-step Guide to Swing Trading Stock Selection

If you’re a beginner trying to navigate the waters of swing trading, here is a simple guide on how to find the right swing trading stocks:

Step 1: Identify Your Watchlist

Start by making a list of potential swing trading stocks. This can include high-performing stocks, stocks with high volatility, and stocks in sectors you are familiar with.

Create your own watchlists on the Rupeezy and monitor the stocks you have shortlisted. Explore the Basket Order feature on Rupeezy trading app which makes it easier to create a watchlist and place orders in one click. 

Step 2: Perform Technical Analysis

Once you’ve identified your watchlist, the next step is to perform technical analysis on these stocks. Look for stocks showing signs of a trend reversal or have high volume, which indicates investor interest.

Rupeezy TV Terminal helps you with free advance charting tools, indicators, multiple charts on single screen to study technical analysis.

Step 3: Monitor the Stocks Regularly

Once you’ve narrowed down your list to a few potential swing trading stocks, the next step is to monitor these stocks regularly.

Look for any news that could impact the stock prices and make sure to adjust your swing trading strategy accordingly.

Step 4: Execute the Trade

Finally, once all the conditions are right and the stock shows signs of a price swing, execute the trade. Remember to set a stop-loss level to manage your risk.

If you want to start swing trading smoothly, download the Rupeezy trading app and open a free Demat account for a seamless experience.

Magic of Technical Analysis

Technical analysis is a treasure trove for swing traders. It provides valuable insights into stock price movements and can help predict future trends.

It involves analyzing statistical trends gathered from trading activity, such as price movement and volume. When selecting stocks for swing trading, some of the critical technical indicators to consider are:

Trend Lines:

These lines connect two or more price points and then extend that line into the future to predict price movements.

An upward trend line is drawn at the lows of an upward trend, indicating support levels. A downward trend line is drawn at the highs of a downward trend, showing resistance levels.

Moving Averages:

This indicator smooths out price data by creating a constantly updated average price. For swing traders, the 50-day and 200-day moving averages are particularly useful.

Stocks trading above their 50-day or 200-day moving average have a generally positive sentiment, while those below are seen as negative.

Volume:

High volume indicates a high level of interest in a stock. When volume increases, it signals strong price movement in the direction of the stock’s current trend.

Stay Updated with Market Conditions

Market conditions significantly influence swing trading. In bullish markets, traders can take advantage of upward swings in stock prices.

In contrast, during bearish markets, traders may look for short-selling opportunities.

Table 1: Market Conditions and Swing Trading Strategies

To gain a clear understanding of bull and bear markets, check out our blog on Bull vs Bear Market.

Trading Tools: Your Best Companion

One cannot overstate the importance of trading tools in swing trading. They assist in analyzing financial markets and identifying trading opportunities.

Rupeezy offers an advanced online trading platform equipped with a variety of tools, including:

• Real-Time Charting Tools: These tools provide real-time data on stock prices and trading volumes. They also offer various technical analysis features that can help identify potential swing trading opportunities.

• Market Research Tools: Astha Trade provides in-depth market research tools that give insights into market trends, economic indicators, and sector performances.

Applying the Steps – A Real Example

To better understand the process, let’s walk through an actual example of finding a swing trading stock in the Indian market. We’ll use Infosys, a high-volume stock within the Nifty 50.

Step 1: Identify Your Market

You’ve decided to focus on the Nifty 50 because you are comfortable with the level of risk associated with these larger, more stable companies.

Step 2: Screen for High Volume Stocks

Using any screener app, you identify Infosys as a high-volume stock, with a daily trading volume typically exceeding 10 million shares.

Step 3: Look for Volatility

Using Bollinger Bands, you observe periods where Infosys’ stock price has moved outside the bands, indicating high volatility.

Step 4: Identify the Trend

By plotting a 50-day moving average, you see that Infosys has been on a general upward trend for the past several months.

Step 5: Monitor News and Events

You follow Infosys news and note their recent announcement of a new contract with a major global retailer. This could potentially impact the stock’s price positively.

Step 6: Choose Your Stocks

Based on your analysis, Infosys meets your criteria of high volume, suitable volatility, positive trend, and potential positive catalyst, making it a good candidate for swing trading.

Step 7: Determine Entry and Exit Points

You use the RSI and MACD to identify potential entry and exit points. The RSI recently dipped below 30, suggesting that Infosys was oversold and could be due for a price rise.

Meanwhile, the MACD line crossed above the signal line, giving a bullish signal. Therefore, you decide to enter a long position. You will monitor the RSI and MACD to decide when to exit your position.

Remember, this is a simplified example. In real trading, you’d also need to consider other factors such as risk management and position sizing.

Role of Astha Trade in Your Swing Trading Journey

Rupeezy, a leading online brokerage firm, can be your trusted partner in your swing trading journey.

With its simple and user friendly trading platform, advance trading tools and timely customer support, Rupeezy provides all the necessary tools and resources to help you find the best swing trading stocks.

The platform also features real-time data and charting tools that are essential for successful swing trading.

Key Takeaways

1. Swing trading involves capitalizing on short-term price swings in the stock market.

2. The success of swing trading depends heavily on the selection of the right stocks, which show signs of high volatility and volume.

3. Technical analysis, market conditions analysis, and regular monitoring are crucial steps in swing trading stock selection.

4. Online brokerage platforms like Astha Trade can provide valuable tools and resources for successful swing trading.

FAQs

1. How much money is needed for swing trading?

The amount of money needed for swing trading depends on various factors including your risk tolerance, the price of the stocks you intend to trade, and your financial goals.

However, it’s always recommended to start with an amount you can afford to lose without affecting your financial stability.

2. When to sell a stock in swing trading?

In swing trading, you should sell a stock when it reaches your predetermined target price or when it hits your stop-loss level, which is set to protect against significant losses.

3. How many stocks to swing trade?

The number of stocks to swing trade can vary. Some traders prefer to focus on one or two at a time, while others may track and trade several stocks simultaneously.

It depends on your capacity to monitor and analyze the stocks.

4. How to screen stocks for swing trading?

Screening swing trading stocks involves looking for stocks with high volatility and volume, using technical analysis tools to identify trending stocks, and considering current market conditions.

Online brokerage platforms like Rupeezy can provide useful tools for this process.