How to Pick Stocks for Swing Trading
There are two major schools of thought in investment analysis: fundamental and technical. Fundamental looks at the book (accounting) value of the company compared to the market value, while technical analysis looks at historical price and volume history. Swing traders primarily use technical analysis to pick stocks as they are looking for stocks with large price moves. Another word for high price movement is volatility in the world of investments, and the measure analysts use to analyze volatility is beta.
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Instructions
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Use a stock screen from your favorite investment research site. One popular investment research site is Yahoo! Finance; however, most stock screens have the same features.
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Determine what price you would like to purchase stocks at. Some swing traders prefer to purchase stocks trading less than $10 while others have no preference. While you may be able to purchase more shares of lower priced stocks, the value of the stocks may be a concern.
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Choose stocks with a beta of greater than 2. Beta is a measure of volatility. A beta of 1 means a stock is trading in line with the market. A beta less than 1 means it is less volatile than the market and a beta greater than 1 means it is more volatile than the market. On Yahoo! Finance's stock screen, you will find beta listed in the 'Stock Data' section. Select '2' for the minimum value.
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Submit the search. Select 10 stocks with high beta's from the list and chart (graph of prices over time) prices for the stock over a one week and one month period. Your goal is to determine the reason for the stock's high volatility. You can also narrow your list by industry focus or size.
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Select the stocks with the largest stock swings from your group of 10 stocks. Beta is used as a way to help narrow your search, but you must still analyze the stocks pricing trends to confirm what beta is telling you.
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Tips & Warnings
Swing trading is very risky. If you're just starting out, begin with a virtual (online) portfolio. When you make a profit, graduate to real trades.
References
Resources
- Photo Credit investment image by Kit Wai Chan from Fotolia.com
