- With few exceptions, the lower a stock price, the faster a stock can move. In investor psychology, a dollar is a dollar, but a $1 move in a $4 stock is a 25 percent gain, whereas a $1 move in a $100 stock is only a 1 percent gain. Ideal swing trade candidates fall into the $4 to $40 range.
- Strong fundamentals, such as sales and earnings growth, often propel stocks to new highs and help them sustain their advances.
- Fundamental analysis helps swing traders select the best stocks to buy. Technical analysis helps them determine the best time to buy those stocks. Timing is very important in swing trading for maximizing profit and minimizing "downtime." Stocks do not move up in a straight line. Their advance often resembles a staircase, where periods of rapid advances are followed by periods of basing, or consolidation. The key is to capture the bulk of an advance while waiting out periods of consolidation. Swing traders use chart patterns to help them determine when a stock is at the beginning of a new advance and when it is topping out and going into another period of consolidation.
- When a stock starts a trend (up or down), it tends to remain in that trend until something causes the trend to falter or reverse. Swing traders look for stocks that are beginning a new trend. Each trend differs in strength and duration, so the strategy is simply to stay with the trend for as long as it lasts.
- Leading stocks come from leading sectors. Even the strongest stocks may struggle if their sector is out of favor. On the other hand, even weak stocks advance when a sector they belong to is in favor. Swing traders limit their stock selection and purchases to the leading sectors.
- Advertisement -
- Advertisement -