When we are going to swing trade stocks we need to define our “prey”, that is what are the characteristics that make up the ideal swing trading stock candidate.
Here are the characteristics of the stocks that I am looking for:
- Volume – At least 200K Avg Daily Volume
- Volatile – If the stock doesn’t move we can’t make money, simple as that.
- Optionable – Not an absolute necessity but preferable. (on more expensive stocks I like to buy options)
- Price – Between $2 and $100, I’m not looking to trade Penny Stocks and much over a $100 and it takes too much money to take a decent size position.
- Trending – Like volatility, if the stock is stuck in a trading range you can’t make any money with it. Stocks are only good if they are trending up or down (for shorting).
- At new highs or just off them – If we’re going to buy a stock, doesn’t it make sense to buy the best? We are not bottom fishing and hoping for a turn around that may never come.
Ok, now we know the type stock we are looking for, how do we find them?
Well the first thing were going to do is set up our charting program. For that I use freestockcharts.com. It is by far the easiest to use with lots of features. Best of all its FREE. See my videos on how to set it up.
Once we have our charting program setup, we need to find some swing trade candidates. For that were going to head over to finviz.com
(Note, click on any of the charts to see it full size)
Now we setup our screen with the following parameters:
- Signal: New High
- Average Volume: Over 200K
- Price: Over $2
- TA (Technical Analysis)
Now we scroll through the results looking for some candidates.
These first few are recent IPO’s, they don’t have enough history to tell us if they are a good buy. Ideally we want at least of year of trading to get an idea of how the stock is going to trade.
Here is the first one that looks interesting. It meets all of our criteria:
Were now going to add this to our charting program in the Bullpen portfolio.
Note: I have created several videos on how to setup Freestockcharts.com, click here for my YouTube Videos.
Now EXAS has been added to our Bullpen portfolio to monitor for a buy point.
We just keep scrolling through the results looking for any interesting candidates for a swing trade. The thing to keep in mind is we can afford to be very “picky” so if doesn’t look good then it probably isn’t. When we are first starting out lets only go after the best possible trades.
These stocks look pretty good EXCEPT they are out of our price range, both are over $100
Let’s keep looking.
Ok, here are 2 more “good looking” candidates. As you go through them you will pick up feel for what “looks good”. Remember be PICKY, there is no reason to select inferior stocks, there are always going to be good stocks to buy. Let’s only pick the BEST.
Some days you’re going to find a LOT of stocks, that’s ok. Just add them to your “Bullpen” to monitor. Once you have gone through them all and added all the interesting ones to your Bullpen we are going to monitor them daily looking for a buy setup. Well look at some examples now to get an idea of what we’re looking for.
What we want to look for is:
- A strong stock hitting new highs.
- Look for a pullback on LOWER volume, forming a wedge or “bull flag”.
- Once the stock breaks out of the “bull flag” were going to buy it.
Now that we have some stocks in our bullpen, we are going to have to spend some time each day going through them looking for our setup to form. No one said this is going to be easy and it is going to take some work looking for the stocks in FINVIZ.com to put in our bullpen and then going through them every day in freestockcharts.com looking for our buy setup.
Note: I have created several videos on how to setup Freestockcharts.com, click here for my YouTube Videos.
Here is a great example of what we are looking for. RDWR has hit new highs, and is pulling back forming a bull flag. Remember; a bull flag can form over a period of a few days to a few weeks. The best ones will break out in 5-8 days. What we are looking for is shown below.
We are going to want to buy RDWR if and when it breaks above to upper trend line and completing the pattern.
And here is the buy:
This is a PERFECT example of a swing trade. Notice how RDWR had a nice orderly pullback on DECREASING volume. That is key, because it tells us that traders are not that interested in selling their stock and are holding on.
Then when the stock broke out of the bull flag is was on HIGHER volume. This is another key thing to look for and confirms the breakout.
Now we set our stop loss at the bottom of the bull flag and let the stock tell us if we are correct in our buy.
Remember we are just playing the odds. We can never be completely sure if the trade is going to work out. We can put the odds greatly in our favor though by buying the right stock (strong stock, hitting new highs) at the right time.
If you follow this strategy you are going to make money!!
Ok, so now we got in, the more important decision is where to get out. This is where we are going to make our money. Until we actually sell the stock all we have are “paper profits”. You can’t spend paper profits so we are going to have to sell at some point and cash in.
When to sell is going to be covered in this article, When to Sell Stocks.
As you can see it takes some time and effort to find stocks to buy. The effort will be well worth it though. Unfortunately I don’t have enough time to do this procedure every day. So to get more swing trading picks I use Microcap Millionaires and Jason Bond Picks.
You can read my reviews of them here: Microcap Millionaires Review and Jason Bond Picks Review
If Penny Stocks are your thing, then you should definitely check out Microcap Millionaires.
Read my review of Microcap Millionaires
You can read all the reviews here:
If you are looking to open a brokerage account or looking for a better one, I wrote some reviews of brokers I have used and currently using.
OptionsHouse Review (Currently Using, Best for Active Swing Traders)
Scottrade Review (Perfect for Beginner Swing Traders)
Regardless of which Stock Picking Service you use or if even if you choose to go it alone, please download my free guide: “The 7 Habits of Millionaire Traders”
– Robert Walsh
