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Friday, 25 December 2015

The Best Stocks for Swing Trading


Basic Trading Concepts Defined

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.

For the average retail trader, buying even a small lot of 100 shares of a high priced stock 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. They can be a higher risk trade given the price, and the risk of sudden profit taking. Therefore they also require extensive experience to trade successfully.

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.

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.

When a stock seldom moves even 1 point in a day, the risk of swing trading rises inordinately in relation to the capital required to trade. 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. 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.
The middle price range stocks tend to be the best for swing trading, because these are not too expensive and they also run better with more points in a run. When setting your swing trading rules and parameters, one of the first tasks is to select your personal 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.

Choosing the price range for your swing trading requires some forethought about several areas of your personal trading including, risk tolerance, capital base, and experience. 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.

Reference: Martha Stokes 

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