Monday, December 9, 2013

TechniTrader Weekly Stock Analysis: “The Best Stocks for Swing Trading”

MetaStock® SPRS Series - Week 148 –December 6, 2013 - MetaStock Spatial Pattern Recognition Skills Series written by Martha Stokes CMT

There are over 5800 listed stocks that investors and traders can choose to trade. Often retail traders use various stock recommendation services but that is the worst way to find stocks to trade.  The reason recommended stocks are not ideal for trading is that these stocks have already run up for many months before they are chosen for recommendation lists.
Choosing the correct price range for your swing trading requires some forethought about several areas of your trading including, risk tolerance, capital base, and experience.
As an example, AAPL is around $550.00 currently.  Because it is so high priced it can and does move 12-15 points in a day, but not every day.
For the average retail trader, buying even a small lot of 100 shares is a huge capital drain.  In addition big blue chip stocks are prone to smaller lot activity intraday and day to day, which makes them more volatile.  AAPL is also a higher risk trade given the price and the risk of sudden profit taking.  It also requires extensive experience to trade it successfully.
For swing trading, you want to avoid volatility and find stocks that will move with velocity.
On the other side of the price equation, many retail traders who have very small capital bases try to swing trade under $10.00 or even under $5.00 stocks.  These stocks however do not usually have strong swing trading style price action, and their patterns are frequently choppy rather than momentum action.
AA as an example below seldom moves even 1 point in a day. With such miniscule gains, the risk of swing trading rises inordinately in relation to the capital required to trade AA.  That means that the risk of a whipsaw on an attempted swing trade is very high, because price doesn’t move sufficiently to create enough profits to offset trading costs, fees, and your time. Remember that you must consider your time as a cost factor for trading.
Therefore AA is not a good candidate for swing trading either, because it doesn’t moves sufficient points in a single day or even during a run that would provide the necessary profit to cover all of your expenses. Remember, just because you make a tiny gain of a few pennies on a trade doesn’t mean the trade was profitable. You must consider all of the costs of trading.
For Swing Traders, the middle range priced stocks tend to be the best. These are not too expensive and they also run better with more points in a run.
When choosing stocks for swing trading selecting a good price range as one of your trading parameters, allows you to screen down the thousands of listed stocks to a much smaller group. This insures that you are then looking at stocks that have sufficient energy to move well, but also are not so pricey that you are putting too much capital at risk on any one trade.
Many traders are lured to the higher priced stocks, over $100.00 because these stocks move 10-30 points in a single day. The problem is that the same stock can quickly reverse and move down 10-30 points. This causes many retail traders substantial losses that did not need to happen.
When setting your swing trading rules and parameters, one of the first tasks is to select your price range that you will use to trade. This is a step that many novice and new swing traders do not realize they must do before they begin trading.
Your price range will define many aspects of your swing trading including personal criteria for scans and sorts. Establishing a price range also will help you find better picks faster.
For more information on Candlestick Patterns go to
Trade wisely,
Martha Stokes CMT
Chartered Market Technician
Member of Market Technicians Association
Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader Stock Market Courses
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This Stock Discussion and Training Lesson is sponsored by
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