Have you ever wondered if you can be an active trader and yet hold stocks in your DEMAT account?
If you are wondering how this can be done, the answer is swing trading. In this article, we will understand the concept of swing trading and know the best strategies on how to book maximum profits while you execute swing trades.
Read on to know more and get detailed insight.
What is Swing Trading?
Swing trading is where the investors buy a stock and hold on to it for a period of time. Swing trading strategies involve. This is called the holding period.
The holding period for a stock in the case of swing trading is short. Generally, a swing trader holds the stock between a few days to a few weeks. The best time frame for swing trading if you have just started investing is between 6 months to 1 year.
Technical analysis is the tool that is often used to select a stock and perform trades. The analysis of stocks gives you an insight into when to buy the stock and when to go short on the stock.
How to do swing trading?
As a swing trader, you should look out for stocks with high volatility and high volume stocks.
- You should pick a stock that provides good returns in the short run. The fundamentals of the stock should be thoroughly examined before investing. You should have a trading account with a broker.
- A DEMAT account is where you can take the delivery of the stock.
- You can analyze the stock with different indicators such as relative strength indicator (RSI), moving averages (MA), etc. A stop loss and a target price should be placed for the stock in a swing trade. A support level is the lowest point from which the stock price bounces upwards. A resistance level is the point where the stock prices stop going up and start to dip.
How to select stocks for Swing Trading?
There are some rules that one can follow so that the swing trades performed can give you maximum profits and returns.
- Market Sentiment: One piece of advice experienced traders give is that if the stock is going upwards under the current scenario, and if the other parameters remain unchanged, the stock price will continue to rise and can be a good investment opportunity. Following indices and current news will help you find the best-performing stocks.
- Liquidity of stocks: The more liquid the stocks are, the less the risk exposure. A liquid stock is preferred for swing trading. Along with the liquidity of stocks, the performance of stocks is also considered before starting trading. Generally, outperforming stocks are selected for the purpose of swing trading.
- Patterns and trends: A stock that has an erratic movement in the market indices should be avoided. Stable price movements are favorable. A study of historical data will enable you to select stocks that will be less volatile, and you can avoid frenzied selling.
Swing Trading Strategies
Some of the most common strategies are as follows:
- Fibonacci Retracement: During swing trading, the stocks can retrace at different levels before rising up again. The Fibonacci retracement strategies can be used to identify support and resistance levels in such cases.
- Support and Resistance: As a swing investor, patterns are of utmost importance, and it is necessary to trace the support and resistance levels. The stock price moves between these two. The support is the lowest low, and the resistance is the ceiling.
- Channel Trading: This strategy is used when you want to trade within a channel. This trading shows a strong trend line.
- Simple Moving Averages: This strategy uses two lines which are a 10-day and a 20-day average lines. These lines represent the movement of stock. When the 10-day average line crosses the other, it signals an uptrend, and when the 20-day crosses the lower, a sell signal is initiated.
- MACD Crossover: This strategy is also an indicator that signals either a buy or a sell order. It consists of a signal line and a MACD Line. When the two lines cross and MACD is over the signal line, it triggers off a buy signal.
A brief introduction to Swing Trading
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Conclusion
Swing trading is an active yet very slow-paced trading method. One can easily learn all the techniques of analysis and master trading. Once you have a hang of all the tools and strategies, you can switch over to intraday trading.
FAQs
Here's how most experienced traders identify stocks for swing trading.
- Rule #1 Sense the Market Sentiment. Following market mood indicators like the put/call ratio and VIX. ...
- Rule #2 Liquid Stocks are a Safe Bet. ...
- Rule #3 Check the Performance. ...
- Rule #4 Identify the Chart Patterns. ...
- Summing Up.
One of the most popular ways to swing trade is by following trends. This means buying stocks that are going up and selling them when you've made a decent profit or when they start going down. To spot an upward trend you can use tools like moving averages, Relative Strength Index.
What is the best moving average strategy for swing trading? ›
20 / 21 period: The 21 moving average is my preferred choice when it comes to short-term swing trading. During trends, price respects it so well and it also signals trend shifts. 50 period: The 50 moving average is the standard swing-trading moving average and is very popular.
Which analysis is good for swing trading? ›
Swing traders primarily use technical analysis, due to the short-term nature of the trades. That said, fundamental analysis can be used to enhance the analysis.
What is the realistic return of swing trading in India? ›
The average return of swing trading is said to be 10%. Of course, it is never possible for you to get these exact ures all the time. Although the overall performance depends on how you do your trades and how many trades you take part in. It can immensely help you achieve your monthly return easily.
What is the best stock screener for swing trading? ›
Best Swing Trading Stock Screeners
- StocksToTrade — Best Overall Swing Trading Stock Screener.
- Seeking Alpha — Best Swing Trading Stock Screener for Stock Recommendations.
- Benzinga Pro — Best Swing Trading Stock Screener for Fundamental Analysis.
- Zacks — Best Swing Trading Stock Screener With Ranking System.
The 1% rule in swing trading is like a safety guideline. It indicates that a trader should not risk more than 1% of their total account capital on a single trade. To adhere to the 1% rule, traders use a stop loss to prevent losing more than 1% of their account equity if a trade moves against them.
What is the golden rule of swing trading? ›
Golden Rules
NEVER, ever, average a loss! Sell out if you think you are wrong. Buy back when you believe you are right. NEVER, NEVER, NEVER listen to anyone else's opinion!
What is the best pattern for swing trading? ›
As far as patterns are concerned, the ascending and descending triangles are considered to be the best. The top swing trading strategies are Fibonacci Retracement, Trend Trading, Reversal Trading, Breakout Strategy and Simple Moving Averages.
Which is the best indicator for swing trading? ›
Top 6 swing trading indicators
- Moving averages.
- Volume.
- Ease of movement.
- Relative strength index (RSI)
- Stochastic Oscillator.
- Support and Resistance.
The best timeframe for swing trading includes 1-hour, 4-hour, and daily timeframes. Here's why: 1-hour charts: Short enough to give you intraday insights but long enough to help you spot broader swings. 4-hour charts: A balanced point of view for identifying short-term and medium-term trends.
What is the most successful moving average strategy? ›
The best way to trade moving average is to use the crossover strategy, where a shorter-period moving average crossing above a longer-period moving average generates a bullish signal, and vice versa for a bearish signal. This method helps indicate potential changes in the market trend.
How to select stocks for swing trading? ›
As a swing trader, you should look out for stocks with high volatility and high volume stocks. You should pick a stock that provides good returns in the short run. The fundamentals of the stock should be thoroughly examined before investing. You should have a trading account with a broker.
Which chart is best for swing trading? ›
There are two types of charts you can use when swing trading: candlestick charts and bar charts. Candlestick charts give you more insights because they show the opening, closing, high, and low prices for a stock. Bar charts only show the closing price.
How to be a successful swing trader? ›
Most successful swing traders look to enter trades where they have a favorable risk/reward ratio, and enter and exit trades with a specific plan for entry and exit. Swing traders are most successful when they are disciplined about taking small losses.
What is the best stock for swing trading? ›
Best Stocks for Swing Trading at a Glance
| Day trading Stock | Code | Market Cap |
|---|
| Advanced Micro Devices Inc | NASDAQ: AMD | $138.58B |
| Alphabet Inc | NASDAQ: GOOG | $1.21T |
| Salesforce | NYSE: CRM | $169.96B |
| Netflix | NASDAQ: NFLX | $160.31B |
6 more rowsBreakouts happen when the price of the stock you're tracking crosses a key resistance level on charts. Most swing traders would enter long positions when the price breaks above resistance, anticipating a continuation of the uptrend. Stop-loss orders are placed below the breakout level to limit potential losses.
How to pick good stocks in Indian market? ›
Find good correlation options: Stocks that have a good correlation with major indices or sectors are a relatively safe bet as they tend to follow the upward movement of an index or sector. Go with the market trends: Market trends are generally reliable indicators of which direction your stock is likely to move in.
Can I do swing trading in US stocks from India? ›
Overseas Trading Account with a Domestic Broker. To start investing in the US stock market from India, you can open an overseas trading account with a domestic brokerage firm that has tie-ups with US brokers. In this method, your domestic broker will act as an intermediary, facilitating and executing your trades.
