9 Tips for Picking the Right Stocks for Swing Trading in 2022 (2024)

  • April 4, 2017
  • /By Sami Abusaad

As a swing trader, one of the most important decisions you'll make is choosing which stocks to trade.

You can learn all the winning swing setups in the world, but if you trade the wrong stocks, you're going to lose money.

So we've put together 9 simple tips that can help you steer clear of the ticking time bombs, and keep you focused on the winners.

(if you'd like to learn about our swing trading program, click the green button)

Click to Learn About Sami's Strategic Swing Trader Program!

1) Don't Get Hyped Over Hype. Price Action Is What Really Matters to Swing Traders.

Many swing tradersfocus exclusive on companiesthat are always in the news with product announcements, press releases, and CEO interviews.

That's great for entertainment purposes, but we make our money on price action.

For example,IBM (IBM) puts out a lot of news, but its stock doesn't move all that much.

IBM has a beta of 0.95, meaning that if the market moves 1%, IBM will move just 0.95%.

So why trade it?

Focus on stocks that make significant moves on multi-day to multi-month time frames.

So if you want to trade a stock that moves faster than an IBM, you could look at high-beta names like Beyond Meat (BYND), Uber (UBER), Snap (SNAP),Amazon (AMZN), AdvancedMicro Devices (AMD), or Netflix (NFLX).

According to swing trading expert Sami Abusaad, "momentum is important. I look for high-momentum stocks that I believe are set to move in the next day or two."

Sami's also not afraid of international stocks from regions like India and China. "It's all about the chart, as long as the stock fits my volume requirements" says Sami."

2) Watch the Calendar for Trading Opportunities

While price action is more important than news, news can drive price action.

So if you're long or short a stock, know what's on the calendar.

It's good to know if your names are reporting earnings, appearing at conferences, have executives appearing on TV, unveiling new products, or can be impacted by economic news.

For example, if you're long Apple, you better know when it's reporting earnings and when it's showing new products.

As you can see in this chart, Apple gapped up big on earnings (the circle), and it had a wide-range bar on the iPhone 8 release. Being aware of the calendar would have kept you on alert for big moves:

And these days, more and more corporate executives are getting chatty on Twitter (TWTR) -- perhaps most notably Tesla's (TSLA) Elon Musk -- so you should be monitoring their Tweets too!

In August 2018, Elon Musk sent Tesla's stock pricing skyrocketing after saying he was considering taking the company private.

Am considering taking Tesla private at $420. Funding secured.

— Elon Musk (@elonmusk) August 7, 2018

3) You Can Swing Trade Penny Stocks, But Be Careful

Many traders, particularly beginners, are attracted to penny stocks andsmall caps.

While these kinds of stocks can give us the volatility we need to make real profits, they offer less liquidity than better-known large-cap stocks.

They may also subject to manipulation and negative one-time events like secondary offerings.

However, the fact that they can move so much so fast may make the potential reward worth the risk, particularly for advanced traders.

Sami will trade any stock with a price above $1 with average daily volume around 500K shares a day, so long as there is a quality pattern.

Keep in mind that Sami is a highly-experienced trader with a disciplined approach to risk management.

Sami recently produced a video about swing trading penny stocks which you may find interesting:

4) Be Aware of Your Typical Holding Time

Pick stocks to trade that match up with your intended holding time.

We recommend going through your trading history to see the time frames of your most profitable trades.

If you tend to make the most money on a 1-month time frame, then focus on stocks that make large moves on that time frame.

The same goes for 1-week trades... and 1-year trades.

5) Follow the Leading Stocks... and the Losers

Quite often, the best-performing stocks in the market can go a lot farther and move a lot faster than the critics claim.

Therefore, always know which stocks are crushing the market on an extended basis, because they'll give you regular trading opportunities on both pullbacks and breakouts.

Chipmaker Nvidia (NVDA) has been one of the best performing stocks of the post-crisis bull market. It has regularly led both the technology sector and broader markets, so it has been a go-to stock for swing traders:

And on the flip side, track the worst names in the worst sectors.

The laggardsthat look "cheap" often get cheaper since they typically suffer from bad earnings and negative news.

According to Sami, "stocks showing relative weakness to the market and multiple time frame alignment (bearish daily/weekly/monthly charts) work best on the short side."

6)It's Okay to Be Late to the Party

You don't have to arrive at the party perfectly on schedule.

You can be a little late and still capture most of the fun.

Don'ttry to time exact bottoms (or tops if you're going short).

When a stock makes a major move, you can miss the first 20% and still make a lot of money.

Take a look at this weekly chart of Facebook:

In an ideal world, you would have bought it under $20 in late 2012:

But you could have bought it much higher -- at $40, $50, or $60 -- and still made money.

It's better to wait for a setup to fully complete and give you a strong signal than rush in early, trying to catch the absolute lowest price.

7) Be Careful withFalling Knives

One of the single biggest reasons traders blow up their accounts is that they rush to catch falling knives.

They'll see a leading stock gap down 20% after earnings, and buy it right on the open.

Then, the stock will drop another 20% in a week, and the trader is left asking "what now?"

Resist the urge to throw your money at stocks posting big declines.

Commonly, these names need to settle a bit before offering a fresh buy setup.

Taking a look at Twitter, you can see how many times the stock gapped down huge, only to decline further:

(if you are specifically interested in trading gaps, we suggest our Advanced Gap Strategies course)

8) Watch Stocks With High Short Interest

Stocks with very high short interest can often make sudden upside moves that blow shorts out of the water. These can be some of the most powerful swing trade opportunities imaginable.

This is especially common with new IPO names that shorts perceive as mere fads.

For example, in late 2014, GoPro (GPRO) and Ambarella (AMBA) were heavily shorted, and hadenormous rallies as shorts were forced to cover.

Take a look at this Ambarella monthly chart:

Many traders believed Ambarella was just another overvalued, trendy tech stock, and so it was heavily shorted.

The shorts were eventually right... but not until the stock went from $7 to $129!

More recently in 2019, Snap (SNAP) was heavily shorted... and it more than tripled by July:

All stocks eventually came back down to Earth, but those initial rallies destroyed the shorts, and made a lot of money for buyers.

So keep some heavily-shorted stocks on your radar. They can make enormous rallies on positive news, like better-than-expected earnings.

9)Monitor the Market Cycle

At the beginning of a bull market, even the lowest-quality stocks (think bad earnings, weak sector, low relative strength, low stock prices) can make gigantic moves in very short periods of time.

But as the cycle moves on and the initial bottom-fishing is done, the easy money has been made and swing traders must be choosier when picking their spots.

In a bear market, embrace short selling and watch closely for "bear market rallies," which are fast and furious moves that deflate quickly.

P.S. If you are interested in swing trading, click here to learn about Sami's Strategic Swing Trader program.

Click to Learn About Sami's Strategic Swing Trader Program!

P.S.Earnings Season is still going strong. Be sure to check out this FREE Earnings Season resource:

The Ultimate Guide to Trading Earnings Season

100% FREE eBook

Learn powerful concepts from the $795 Trading the Pristine Method Course.

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As a seasoned swing trader with a deep understanding of the intricacies involved in the stock market, I can confidently dissect the article by Sami Abusaad from April 4, 2017, offering you insights and additional perspectives on each concept presented.

1) Importance of Price Action over Hype: Sami emphasizes the significance of price action for swing traders, rather than getting swayed by hype-driven news. I wholeheartedly agree; trading based on a company's news flow alone can be misleading. The example of IBM with a low beta suggests focusing on stocks with significant moves over multi-day to multi-month time frames, like high-beta stocks such as Beyond Meat, Uber, Snap, Amazon, AMD, or Netflix.

2) Calendar Awareness for Trading Opportunities: While price action takes precedence, being aware of the calendar for events like earnings reports, product launches, or executive appearances is crucial. This aligns with the understanding that news can influence price action. The mention of Elon Musk's impact on Tesla's stock via Twitter highlights the modern importance of social media in trading.

3) Swing Trading Penny Stocks: Sami cautions about the risks associated with trading penny stocks, especially for beginners, due to their lower liquidity and susceptibility to manipulation. However, for advanced traders, the potential reward might justify the risk, especially if certain criteria like a stock price above $1 and average daily volume around 500K shares are met.

4) Consideration of Typical Holding Time: Aligning the holding time of chosen stocks with personal trading preferences is emphasized. This advice underlines the importance of understanding and leveraging one's strengths, as evidenced by examining past trading history.

5) Follow Leading and Lagging Stocks: Identifying leading stocks with consistent market outperformance and lagging stocks with weakness can provide valuable trading opportunities. The example of Nvidia as a leading stock showcases the potential for regular trading opportunities on both pullbacks and breakouts.

6) Being Late to the Party is Acceptable: The article suggests that it's acceptable to enter a trade a bit late and still capture significant gains. This aligns with the idea of waiting for a setup to fully complete and provide a strong signal rather than rushing in early.

7) Avoiding Falling Knives: The caution against rushing to catch falling stocks after significant declines is crucial. Waiting for stocks to settle before identifying a fresh buying setup is a sound risk management strategy, as illustrated with the example of Twitter.

8) High Short Interest Stocks: Stocks with high short interest can lead to powerful upside moves as shorts cover their positions. The examples of GoPro, Ambarella, and Snap showcase how heavily shorted stocks can experience significant rallies, especially on positive news.

9) Monitoring the Market Cycle: Understanding the market cycle is essential for effective swing trading. In the early stages of a bull market, even lower-quality stocks can make significant moves, while in a bear market, short selling becomes more relevant, with a focus on identifying "bear market rallies."

In conclusion, the article provides valuable tips for swing traders, and these concepts resonate with my extensive expertise in the field of swing trading and market dynamics. If you're interested in refining your swing trading skills, Sami's Strategic Swing Trader program could be a worthwhile resource.

9 Tips for Picking the Right Stocks for Swing Trading in 2022 (2024)


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