Swing Trading Stocks

The anticipated holding period when swing trading stocks, indexes and ETFs is 2 – 20 bars. On a daily chart the swing trader may be holding positions for out to about a calendar month. Sounds like a ho-hum, so what, but even a 10 day holding period means that four times a year the trader could grossly overpay for long options (both calls and puts) from inflated implied volatility that always begins a couple weeks before earnings, or run the risk of having a profitable stock position bushwhacked by an earnings report.  Swing trading stock picks should also have a mix of indexes and ETFs to sort through during earnings season.

What other things should you be looking at to include in your trading plan before jumping into swing trading stocks?  Before deciding on the best stock charts or the best technical analysis methods, take some time and make your stock lists. You want symbols with good liquidity and an Average True Range (ATR) that indicates that the stock can move far enough in a brief period of time to shade the risk-reward ratio in your favor.  If you plan on using options as a stock substitute then focus your stock lists on the very most liquid stocks, the same ones that show up in the most active lists day after day – APPL, BAC, AMD are just a few.

If you plan on specializing in a sector or an industry check for very high correlation between symbols. Trading two or three or more symbols for diversification is actually the same trade if the correlation among them is more than 80%.

Correlation is also important when you scan for stocks as swing trading candidates. How well do your candidates correlate with the major indexes? You have heard the expression that a rising tide lifts all boats. A falling tide has the same effect. On those occasions that you decide to trade against the prevailing market trend you want to be sure that your stock or ETF has a history of counter directional moves.

Swing Master Chartist has the tools to sort out potential correlation issues. The Correlation Chart displays the correlation percentage among 10 user selected symbols.

Swing Trading Stocks Correlation Chart

Swing Master Chartist Correlation Chart

The Correlation Calculator compares two symbols and provides a graph of the correlation over the past two months.

Swing Trading Stocks Correlation Calculator

Swing Mater Chartist Correlation Calculator

Swing trading stocks is more involved than hunting down the latest and greatest technical indicators. Your stock watch lists are the foundation of your trading strategy before you ever think about drawing a trend line. Compiling many different lists into categories that make sense to you is in the long run a huge time saver that allows you take immediate advantage of changing market conditions, sector rotations, and tomorrow’s hottest industry group.