When you’re swing trading, a key decision you need to make is which stocks you’re going to trade. No matter how much energy and time you put into learning winning swing setups, when you choose the wrong stocks, you’ll inevitably lose money. With this in mind, it couldn’t be more important to dedicate your efforts to selecting the best stocks that will make you profits. Here are five expert tips to point you in the right direction.
1. Focus On Price Action, Not Hype
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Lots of swing traders make the mistake of focusing exclusively on companies which they hear a lot about in the media. Press releases, CEO interviews and product announcements may keep businesses in the public eye, but they aren’t always the best choice of stock for swing trading. Price action is what makes money. Big name companies like IBM may put out plenty of news, however its stock rarely moves to any great extent. That’s why it’s more effective to focus on those stocks that move quickly and which have high momentum.
2. Watch The News And Act Quickly
Tip one was to avoid getting blindsided by hype around big name companies. However, that doesn’t mean you should stop watching the news altogether. In fact, news can have a major role to play in driving price action, so do your research well and be prepared to take swift action. If you favor a specific company, you need to be aware of when they’ll be appearing at a conference or on a TV show, unveiling a new product or releasing a press report. Such events can trigger huge moves in stock prices so keep your eyes and ears open to what’s happening in the media and respond immediately to reap the benefits.
3. Swing Trading Penny Stocks Is Possible, But You Need To Take Care
Lots of swing traders, and especially novices, are drawn to penny stocks trading. It’s easy to see why – these stocks give the necessary volatility to ensure real profits – however they also offer less liquidity when compared to large-cap better known stocks. The possibility of exploiting the potential of the significant and speedy movement of penny stocks may make the rewards worth the risks, but a disciplined approach must be taken with this kind of swing trading when it comes to risk management. You need to put the time and effort into learning as much as you can about how to trade penny stocks profitably to avoid the many pitfalls of this kind of risky trading venture.
4. Match Your Stocks To Your Holding Time
It’s vital to choose stocks for trading which match with the holding time that you intend to have. If you’re going to choose a one-month time frame, for example, you need to research which stocks make significant moves during that period. The same applies, clearly, for one-year or one-week trades.
5. Seize The Opportunities Of High Short Interest Stocks
Stocks that have a high short interest may make unexpected upside moves which represent some seriously powerful swing trading opportunities. This is particularly common with newer IPO names which shorts think are just fads. While every stock will eventually return to a normal level, initial rallies can destroy the shorts, making huge profits for you as a buyer. Make sure you keep a close eye on heavily-shorted stocks. They may make impressive rallies if positive news is released, so be ready to seize the opportunity.
Follow these five expert swing trading tips and you’ll be on your way to even greater investment success.