If you want the maximum return from short to medium-term market action, the optimal method of investing is swing trading. The optimal method of getting maximum return and minimum loss is finding the best swing trading opportunities. In this article here, we will guide you through an easy 2-step analytical process for finding high-looking swing trading opportunities.
Step 1: Find Stocks with Clear Price Movements
The first and most important thing to identify while selecting the best swing trading ideas is to find those stocks with clean and consistent price actions. Swing traders are more than happy to discover those stocks that can create enormous price movements in weeks to days.
Why Clear Price Movements Are Important?
When swing trading, you would like to trade stock with strong up or down momentum. Up-trend or down-trend stock is ideal since they have the highest chance of rapid price movement. A sideways or even range-bound stock would not be an ideal one to swing trade since the price movement is very small.
Key Indicators to Use for This Step
To see the clean price action stocks, you can look for the following technical indicators:
Moving Averages: Moving above or below the moving averages is a forecast of future price action.
Relative Strength Index (RSI): An RSI above 70 is the overbought level, and an RSI below 30 is the oversold level.
Price Patterns: Find corresponding price patterns such as head and shoulders, flags, or triangles and mark the stock as probable to make a major move.
You should be able to spot swing trading potential setups by paying attention to stocks with these attributes.
Step 2: Observe the Dominance of Volume and Stock Liquidity
Having finished a stock with good price action, the second is that it must be reasonably liquified and of high volume. Swing trading demands there to be sufficient trading in which to enter and exit positions without slippage or expense of high spread.
Why do Volume and Liquidity Matter?
High volume is a good indication that investors have a working interest in the stock. Liquid stock is usually trading stock, i.e., buy and sell together. The readily non-tradable stock will be low-volume stock, and you’ll experience wider spreads, which will consume your profit.
What is Volume and How to Use it?
As you watch the volume, there are things you need to watch out for:
Volume Spikes:
Volume spikes may signal likely breakdown or breakout and, therefore, the best swing trading pattern.
Consistent Volume: Regular volume and other regular volume are best for swing trading.
Volume Relative to Average:
Observe current volume in comparison to average volume for some specified duration of time (e.g., 50 days). The higher the above average, the greater the interest.
With both high volume and a clear price movement, you’re much more likely to find a swing trading opportunity that can deliver strong returns.
Combining Both Steps for Better Results
When you combine both processes—looking for stocks that have good price action and observing them trading high volume and liquidity—you will notice that it is simpler to spot the most lucrative swing trading opportunities. You can trade those stocks that trend and also are of high trade volumes, thus preventing you from getting stuck in a trade.
Conclusion
To find the most profitable swing trading situations means that you need to see two things we need to be aware of: clean price action and good volume and liquidity. By applying this easy 2-Step Evaluation control procedure, you will be able to construct winning trades more effectively and eliminate dead inventory and illiquidity. Remember that swing trading is all about getting to those levels where the market is ready to move, and these steps will guide you in the right direction to get there easily.