Swing traders buy a stock for a few days, then sell it for a profit. You can learn how to buy stocks that are moving upward and start timing your sales to get out before they drop back down in price.
If you are new to swing trading, the best way you can help yourself learn quickly is by picking the right stocks to buy in the first place. Look for large-cap stocks, because they have numerous shares changing hands at any given minute, and this makes them easy to buy and sell quickly.
Find stocks that are relatively calm. Don't look for huge moves. You should look for stocks that are trending slightly up or down without much drama. You are trying to make a living instead of making a killing. (See also: The Daily Routine Of A Swing Trader.)
We have picked three stocks that have some fairly obvious buy and sell signals that they show regularly. All information is current as of June 6, 2018. Start following these stocks and make “paper trades.” Then move into real trades with real dollars and teach yourself to see the signs of when to buy and when to sell.
Facebook is a great stock for learning to trade trend lines. When you look at the stock chart, you can see that as the stock zig-zags 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. (See also: Pros and Cons of Day Trading vs Swing Trading.)
Similarly, you can draw a trend line 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. In the case of Facebook, it had a recent breakout that went above the upper trend line. Ignore that surge and draw your upper trend line using the other peaks in the chart.
Approximately 33 million shares are bought and sold daily, 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.
2. Microsoft Corp.
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 trend line 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.
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 trend line, the more likely it is that the line is accurate. Roughly 30 million shares are bought and sold daily.
3. Apple Inc.
The stock of Apple Inc. (AAPL) will require a little more finesse than MSFT and FB. The stock is trending upward, but it has formed new trend lines over the last 18 months. This is a good lesson in trend lines: they can change. The newest trend seems to be establishing itself, but be aware that new trends are less reliable than well-established ones.
This is a good stock 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 30 million shares are bought and sold daily.
The Bottom Line
To start swing trading, make it easier for yourself by choosing companies that consistently show an established pattern. Begin making your predictions about the peaks and valleys, and you will start to get into the swing for swing trading.