Swing traders buy a stock for a few days, then sell it for a profit after the price has moved higher. That's the goal anyway. If this interests you, the best way to learn quickly is by picking the right stocks to buy in the first place. Look first at large-cap stocks because they have numerous shares changing hands at any given minute, and this makes them easy to buy and sell quickly.
In other words, liquidity is an essential factor to consider when searching for swing-trading candidates.
- Swing traders typically try to buy a stock, hold it for two or three days, then sell it at a profit.
- Not all stocks are suitable candidates for swing trading.
- The best candidates have sufficient liquidity and steady price action.
- Facebook, Apple, and Microsoft are suitable stocks for swing trading in certain market conditions.
- To see if swing trading makes sense for you, consider practice trading before risking real money.
Picking Swing Stocks
Next, find stocks that are relatively calm and not seeing excessive volatility. Don't look for huge moves. You should look for stocks that are trending slightly up or down, with steady price action, but without too much drama. You are trying to make a living instead of making a killing.
We picked three stocks for their liquidity and steady price action. Start following these stocks and make paper trades. Then move on to real trades with real dollars. Teach yourself to see the signs of when to buy and when to sell, but note that market conditions often change and an approach that worked before might not necessarily make profits in the future.
Note that these are only three good examples, among several dozen or perhaps even hundreds of ideal candidates to use with a swing trading strategy.
Facebook (FB) is a great stock for learning to trade trendlines. When you look at the stock chart, you can see that as the stock zigzags upward, the low points in the pattern all line up. You can draw an approximate line across these low points. That is the lower trend line. Every time the stock hits that line, it goes back up.
What makes this stock especially good to start with is that the bottom trend line is already drawn for you. Make sure your chart shows the 50-day moving average. This is the bottom trend line for this particular stock at this time.
Similarly, you can draw a trendline across the highs the stock hits. When Facebook reaches that upper trend line, it tends to drop back down to its bottom trend line. Note that these trend lines are approximate. You have to get the knack for knowing when the stock price is about to turn, rather than count on a strict adherence to the trend lines you have drawn.
Approximately 16 million shares are bought and sold daily in April 2020, so it is easy for you to find buyers and sellers. This means the stock is liquid, and you probably won’t get stuck with it if it starts to drop.
You can trade Microsoft (MSFT) stock much like you would trade Facebook. Once again, the 50-day moving average serves as a rough guide for the lower trend line, though not as neatly as Facebook’s does. The upper trendline is also a bit ragged, so this stock will be a good one to learn the feel for when the stock is going to rise and fall.
The best stocks for swing trading might be a lot different in the future, as market conditions are always changing.
Still, the stock is trending regularly enough that you can count on it to continue its pattern for a while and learn to time your buy and sell points regularly. Draw a line across the highs to determine the approximate value at which you should sell. Note that the longer trendline, the more likely it is that the line is accurate. Roughly 24 million shares are bought and sold daily as of April 2020.
The stock of Apple Inc. (AAPL) will require a little more finesse than MSFT and FB. The stock is trending upward and is an ideal candidate for learning how to trade the news. Apple has many product launches and announcements that affect the price of the stock. Watch for those announcements and see how the stock responds. This will add an extra element to your swing trading. You can watch the technical indicators on the chart and combine them with the fundamentals of the company to help time your trades. Over 24 million shares are bought and sold daily as of April 2020.
The Bottom Line
To start swing trading, make it easier for yourself by choosing stocks that consistently show established chart patterns. Typically, large-cap names with sufficient liquidity—like MSFT, FB, and AAPL—are ideal places to start. Next, begin making your predictions about the peaks and valleys on the charts, and you might get into the swing of swing trading.