Tips to Identify the Best Stocks for Swing Trading

Choosing stocks for swing trading is like picking out quality products while shopping. You wouldn’t just grab the first thing you see—you’d look for something dependable and worthwhile. The same approach applies to swing trading. By carefully selecting stocks with good potential, you’re setting yourself up for gains that last, rather than quick, unreliable wins.

What is Swing Trading?

Swing trading is a way of trading where people try to make profits by holding stocks or other assets for a few days to a few weeks. Unlike day traders, who buy and sell within the same day, swing traders keep their investments for a bit longer to benefit from short-term changes in stock prices.

Swing traders study charts and price trends to understand when to buy or sell. They use patterns and indicators, such as moving averages or the relative strength index (RSI), to help predict when a stock’s price might rise or fall. By identifying these “swings” in prices, they aim to make a profit from small changes over a shorter time.

Swing trading is popular because it requires less constant monitoring than day trading but still focuses on shorter-term opportunities for profit.

Tips for identifying the best stocks for swing trading

1. Look for Stocks with High Liquidity

High liquidity ensures that there are enough buyers and sellers in the market to allow you to enter and exit trades easily. Stocks like Reliance Industries and HDFC Bank are popular in India because they have high trading volumes, meaning swing traders can buy and sell without facing much slippage or price manipulation.

Example: Reliance Industries (RELIANCE) regularly sees high volume, making it a top pick for swing traders.

2. Identify Stocks with Clear Price Trends

Swing traders thrive on identifying stocks that are trending in one direction. Infosys, a leader in the IT sector, often shows clear upward or downward trends based on market sentiment, earnings reports, and global tech demand. This makes it a good candidate for trend-based swing trading strategies.

Example: Infosys (INFY) often follows a clear upward trend after positive earnings reports, making it a good stock for swing trading.

3. Look for Stocks with Volatility

Stocks in sectors like pharmaceuticals and technology often show higher volatility, making them ideal for swing trading. For instance, Biocon and Zomato can experience sharp price swings based on news like product launches, regulatory approvals, or changes in investor sentiment.

Example: Zomato (ZOMATO) and Biocon (BIOCON) experience significant volatility, which can present profitable opportunities for swing traders.

Zomato:

Zomato’s stock has been volatile due to fluctuations in revenue growth, market sentiment, and profitability concerns. Recent positive earnings reports can cause short-term price boosts, but the company remains sensitive to broader market dynamics, competition, and rising costs.

Key Indicator: Zomato’s Earnings Per Share (EPS) and Quarterly Revenue Growth are crucial to watch, with the stock reacting strongly to results above or below analyst expectations.

Biocon:

Biocon has seen volatility driven by factors like regulatory approvals, global market conditions, and the performance of its biosimilars. Positive developments, like successful drug approvals or strong earnings, can lead to surges, while concerns over competition or regulatory delays may cause drops.

Key Indicator: Revenue from Biosimilars and FDA Approvals are vital indicators, impacting investor confidence.

Both stocks are highly reactive to earnings reports and sector-specific news.

4. Use Technical Analysis

Indian stocks like Tata Motors and Maruti Suzuki are good examples where technical analysis can be effectively applied. By analyzing patterns, support, and resistance levels, traders can determine potential entry and exit points. For instance, Tata Motors may form bullish or bearish patterns, which can be spotted through tools like RSI and moving averages.

Example: Tata Motors (TATAMOTORS) shows clear price patterns that are ideal for technical analysis-based trading.

Tata Motors has recently hit a low of ₹819.80, marking a notable drop from its earlier levels. Over the last month, the stock has decreased by around 10.72%, although it has shown a 26.23% increase in the past year​

This recent dip could be attributed to broader market conditions or specific factors like production challenges, volatility in the automotive sector, or shifting investor sentiments. However, analysts still predict a potential upside, with target prices ranging from ₹825 to ₹1,340, suggesting a bounce-back potential​

Source- Stock Analysis

Source - Google

5. Consider Earnings Reports and News

A positive earnings report or an announcement of a strategic partnership can lead to sharp price movements. For example, Wipro and TCS regularly release earnings reports that impact their stock prices. A positive report can push the stock upwards, and swing traders can capitalise on this short-term movement.

Example: Wipro (WIPRO) and TCS (TCS) stocks are known to make significant moves post-earnings season, providing ample opportunities for swing traders.

6. Focus on Stocks with a Strong Sector or Industry

Stocks from high-growth sectors such as renewable energy or electric vehicles can be profitable for swing traders. Adani Green Energy and Tata Power are two examples from the renewable energy sector that show growth potential, and traders can capitalize on their price movements.

Example: Adani Green Energy (ADANIGREEN) has seen impressive growth, making it an ideal stock for swing trading in the renewable energy space.

7. Set Entry and Exit Points

When trading stocks like ICICI Bank or Kotak Mahindra Bank, swing traders can set precise entry and exit points based on technical indicators like support/resistance levels. For example, if the stock approaches a support level and starts to show signs of a rebound, it may be an ideal entry point.

Example: ICICI Bank (ICICIBANK) shows regular fluctuations that can be captured using specific entry and exit points, making it perfect for swing trading.

Advantages of Swing Trading

Swing trading offers several benefits for traders who aim to capitalize on short- to medium-term price movements. Here are some of the key advantages:

1. Profit Potential

Swing trading provides the opportunity to generate profits in both rising and falling markets. Traders can buy low and sell high, or sell high and buy back at a lower price, making it a versatile strategy to capture profits during market fluctuations.

2. Flexibility in Time Commitment

Unlike day trading, which requires constant monitoring of the markets, swing trading allows traders to hold positions for several days or weeks. This flexibility makes it more suitable for people with full-time jobs or those who cannot monitor the markets all day.

3. Leverages Market Volatility

Swing traders thrive on market volatility. They look for price movements that occur over a short period. Volatile stocks with large price swings, like those in sectors such as technology or energy, provide ample opportunities for swing traders to profit.

4. Reduced Stress Compared to Day Trading

Since swing traders don’t need to monitor the market every minute, they experience less stress than day traders. This allows them to take a more calculated and less emotional approach to making trading decisions.

5. Opportunities in Different Market Conditions

Swing trading can be profitable in both bull and bear markets. Traders can short-sell stocks during a downtrend or go long when stocks are rising, ensuring that they can capitalize on various market conditions.

Difference Between Swing and Day Trading

Final Thoughts 

Swing trading can be a rewarding strategy for investors who know how to spot the right stocks. By focusing on stocks with high liquidity, clear price trends, and volatility, traders can maximise their chances of capitalising on short-term price movements. Incorporating technical analysis, staying updated on earnings reports and news, and selecting stocks from growth sectors further enhance a swing trader’s ability to make informed decisions.

For Indian investors, stocks from established companies like Reliance Industries, Infosys, and Tata Motors offer a good mix of liquidity and trending movements, while stocks in emerging sectors such as renewable energy (e.g., Adani Green Energy) provide fresh opportunities for those willing to research and stay on top of the latest market developments.

Swing trading requires patience, discipline, and a strategic approach. While it offers the potential for quick profits, it also carries risks. Ensuring that you set clear entry and exit points, along with maintaining a solid understanding of market movements and stock-specific factors, will increase your likelihood of success in the world of swing trading.

People Also Ask 

Q1. What tools can help with swing trading?

Ans:- Swing traders often use charting software and platforms that offer real-time market data, technical analysis, and alerts. Platforms like TradingBells provide verified stock data, technical indicators, and detailed market analysis to help traders make informed decisions.

Q2. Can I swing trade with limited capital?

Ans:- Yes, swing trading can be done with limited capital. However, it's essential to manage risk and ensure you are trading within your means. Using strategies like stop-loss orders and position sizing can help manage risk when starting with smaller amounts.

Q3. What are the risks of swing trading?

Ans:- The primary risk in swing trading is the volatility of the market. Prices can swing unexpectedly due to news events or market sentiment, leading to potential losses. Additionally, swing traders may face overnight risks if market conditions change when the markets are closed.

Q4. How can TradingBells help with swing trading?

Ans:- TradingBells offers a range of features for swing traders, including verified, real-time stock data, technical analysis tools, and market alerts. The platform ensures transparency and provides traders with reliable information to make informed, confident decisions. Whether you're a beginner or an experienced trader, TradingBells can help streamline your swing trading strategy with its comprehensive tools and resources.