How to Swing Trade Summary (C12): 3 Swing Trading Strategies

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There are many different strategies you can use when swing trading.

Some work better than others, but none work 100% of the time.

The one(s) you decide to use will depend on your personal preferences and market conditions.

Here we will look at three strategies. Between these three you will be able to find many good trades while still keeping things simple.

You need to set a regular routine where you will scan for trades.

It can be daily, every other day, weekly, or whatever suits you, but you need to do it in order to find new opportunities.

Your broker may offer this service. If not, use Finviz (finviz.com).

When scanning, do the following things in this order:

It is always better to work with the market, so you need to know the overall sentiment.

If the majority of stocks are increasing in price, the percentage of new highs are greater than new lows, and stocks are above their 50-day and 200-day moving averages, it means the market is bullish.

If you see the opposite, then it is a bear market.

In finviz, you can see these stats underneath the three graphs at the top of the home page.

Now that you know the overall market conditions, you want to check out conditions per sector.

In finviz you can select the Groups tab and there will be some bar charts displaying sector performance. Green sectors are bullish and red sectors are bearish.

Look for alignment over various time frames, and then alignment with the overall market. Are you in a bullish market with a bullish sector that has been bullish for the day, week, and month? If so, it is a good alignment.

You can use the screener to filter out stocks to meet specific parameters.

In finviz there are three tabs: descriptive, fundamental, and technical.

Here are some parameters you can use:

Descriptive

Average volume: At least 200,000 shares per day (lower volume stocks generally have wider spreads)

Relative volume: Over 1.5. If recent volume is above the average it is an indicator that the stock will move either up or down, as opposed to moving sideways.

Country: This depends on where you want to trade. Consider market opening times, your currency, etc.

Price: You want to consider your capital and also eliminate penny stocks. Use a setting to at least ‘over $2.’

Fundamental

To keep things simple, start by using no filters in this section. If after all other filters have been applied there are still too many stocks, then you can play around with this tab to narrow things down a bit more.

You will need to learn more about what the accounting numbers mean to be able to use it meaningfully, but here are a couple of parameters you can use to filter out long (stocks rising in value) opportunities:

• Companies that are growing in sales and profits
• Debt to equity less than 1
• Return on equity over 20%

Technical

When looking for long opportunities, you can use the following parameters:

Strong uptrend: Stock price above 20-day, 50-day, and 200-day moving averages.

Bullish reversal: Stock price above 20-day moving average but below 50-day and 200-day moving averages.

Bullish reversal: Either double bottom, engulfing candle up, or dragonfly doji.

Additional filters may include: RSI under 30 (and definitely not over 70), float short greater than 20%, and EPS greater than 20%.

Once you have your shortlist of stocks from the screener, you can take a closer look at each one.

Look for the common patterns which indicate a good setup (double bottom, dojis, etc.)

Plot lines of support and resistance to determine entry and exit levels. Finviz does this for you when you click on a stock to see the chart.

Do some quick research to ensure the sector is in favor, there is no impending news, and check the RSI and MACD for alignment.

With gap trades, you are aiming to hop on a multi-day run based on some type of news event.

Generally, a stock will close at one price for the day and open the following day at a different price.

Usually the difference in price isn’t much, but sometimes there is significant news overnight which causes the gap to be larger, and you can see this visually in the chart.

Note from Sam: Your security can gap below your stop loss price during closed hours. If this happens, your stop loss will generally be triggered at the next available price, which may be significantly lower than your stop loss. Using stop-limit orders can help mitigate this risk. Also, consider closing all positions over the weekend and/or enabling trading after hours.

A gap trading strategy requires you to monitor the market during the day, so if that isn’t your thing then skip this.

You are searching for trending stocks as well as any significant news that a stock or sector might make a big move.

As an example, you could buy a stock that has been very strong during the day and hold it overnight in hope that you catch a big price movement overnight. You would then hold it for the ‘3-day rule.’

The ‘3-day rule’ is based on the belief that if some event moves a stock price, it will continue for about 3 days before settling again.

Here is a list of attributes to look for when applying this strategy to a long position:

• Same day good news that wasn’t anticipated
• Strong price action during the day
• A strong close in the last 30 minutes of trading
• In a bullish sector
• A bullish market overall
• A float less than 10 million shares

To mitigate risk for gap trades, keep your position small and have a plan in place for what to do the next morning if it doesn’t go your way.

Hot sector manias are probably one of the best opportunities for swing traders, but they don’t occur very often.

Although they will eventually show during technical analysis, they will always start as ‘story-driven’ trades.

Some examples of relatively recent hot sector manias are the dot-com bubble, when medical marijuana was legalized, and the rise of Bitcoin.

The key to hot sector manias are having patience for them to occur, getting in early when they do, and then exiting before the bubble bursts.

To find hot sector trends you can:

Scan business articles

See what is trending in social media such as stocktwits and also in facebook groups

Look for it while doing your technical scans

The key idea to keep in mind for hot sector mania is to ‘follow the money.’

Read the next chapter here.

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