Swing Trading is a stock transaction which is normally opened and closed within 3-5 days looking for gains from a catalyst of sorts.
We prefer looking for liquid stocks between 50 Million and 2 Billion on market share, liquid meaning with a fair amount of volume as to not get stuck in the stock. Preferably $1-$10 stocks; Favorite $3-$5, over 500k average shares per day.
Good swing trading opportunities have a catalyst or reason why the stock price should increase, such as oversold patterns, Fibonacci retracement and biotechs with upcoming catalysts.
With a biotech swing trade you have to watch out for offerings by checking the financials of the company, and ensure the chart is suitable for swing trading. In general most biotech companies will see a run up to an upcoming catalyst, such as phase 1, 2, 3, NDA submission, and FDA approvals. (See stages of New Drug Development). I personally don’t like to hold through the catalyst as it increases risk.
Oversold Patterns offer a nice swing trading opportunity for a bottom bounce or bottom reversal. Generally I look for the beginning of a green candle for an entry point. When you buy after news took effect, has washed out and is factored into the price, you generally see a recovery. Oversold is when the stock has sold off about 50% in a short period of time and established a bottom. An oversold stock will generally have a RSI under 30.
Fibonacci retracement should have spiked on good news in order to create a decent swing trade opportunity. The key being Good News. Too often a stock will rally on NO news, I don’t like to swing trade these stocks as they normally don’t create a favorable fibonacci pattern.
There are several other decent swing trading setups and opportunities, which we can discuss below.