5 Parameters to Consider for Swing Trading

“The trend is your friend until the end when it bends.” How many of you have heard this quote? Those who already have, then we are sure that they must already have heard about swing trading too, and those you haven’t, don’t worry! We will decode it for you.

For starters, swing trading is a trading style that helps us to capture short to medium-term gains for a period of a few weeks in any stock or financial instruments. Swing traders usually use technical analysis for picking up stocks for swing trading!

But wait! Swing trading shouldn’t be confused with day trading. The main difference between day trading and swing trading is the holding time. Yes! The positions in day trading are closed within the day, whereas the positions in swing trading can be carried forward and held for a few weeks to a month.

Having understood what swing trading means, in today’s blog, we will discuss the five main factors that one should consider for swing trading are

1. Breakouts

As discussed above, swing trading refers to trading with the trend. Thus, the breakout from a range, chart pattern, important resistance and support zones, or reversal candlestick patterns are some technical tools that swing traders should pay attention to.

2. Volume

Volume is an essential tool for swing traders as it helps them analyze the strength of a new trend. The main reason behind this is that a trend with high volume will be stronger than one with weak volume. In addition, more traders buying or selling gives a better basis for the price action.

3. Liquidity 

One of the most basic rules for swing trading is that traders should only trade liquid stocks. Of course, the daily minimum you select is arbitrary, but the most helpful example is 500,000 shares per day.

4. Relative Strength

One should select those stocks that are relatively stronger than the sector or the index for swing trading. This measure helps us identify both the strongest and the weakest securities or any asset classes within the financial market. Usually, the stocks which display strong or weak RS over a given period tend to continue going forward.

5. Volatility 

Volatility is one of the major factors for selecting stocks for swing trading. Volatility helps us to measure how much the stock price will move. Traders can use volatility indicators such as Bollinger bands or ATR to gauge how volatile the stock is. Swing traders should select those stocks for trading that are volatile. Large moves are generated by volatile stocks and give us a reasonable window for stops and profits.