Swing Trading

Swing trading strategy usually only require the trader to hold on the stock for few days to a few weeks. Trader can use combination of technical analysis and a little of fundamental analysis. Below is some of the common steps adopted by trader who use swing trading strategy

Fundamental Screening

1. P/E Screening

Look for stock with P/E > 10. This is because stocks with higher P/E are stocks that majority of the investors and traders are optimistic of its growth. Swing trader only hold on to stock for a short time frame. So it make no sense for them to choose a stock that is undiscovered and have to wait a long time before the price goes up

2. Increasing Huge Earnings

Stock that consistently maintain record of having increasing large net income, tends to attract more traders. It will be better if the company has history or earning surprise.

Technical Analysis

1. Trend

In order to maximize the profit, trader should always follow the long term trend. If the stock is currently facing a long term bearish trend, do not trade against the trend even though sometime there are some short term bullish trend in a long term bearish trend.

2. Technical Indicator

I recommend you do not just rely on only one technical indicator for confirmation. In it always good to use more than one technical indicator of different type, e.g. price-volume, momentum indicator etc. If all the indicator agrees, then it is a considered a good confirmation signal. To confirm the success rate of the technical indicator rule, you can make use of some backtester software like tradestation or chartnexus. This will test the rules against the historical data and provide you with statistical write up of its performance.

3. Candlestick

Swing trader should also use Japanese candlestick chart to check for trend reversal and continuation signal before making the decision to buy into the stock