Swing trading is a short-term strategy. And with that, traders are usually in and out of a position in a few days or weeks. Overall, most of this trading style is based on technical market indicators. And that makes a few tickers stand out as some of the best swing trade stocks on Wall Street.
Moreover, swing traders usually aren’t concerned with fundamental analysis. Their goal is to profit off of short-term imbalances of supply and demand in a market.
However, most beginner swing traders lose money. It happens because they don’t understand the most important rule of trading: to have an exit plan.
Before a trader takes a position, they should two targets. One is where they will take profits, and the second is where they will take a loss.
In addition to having a well-defined exit strategy, successful swing traders usually consider two other things.
The first is a catalyst or reason for establishing the trade. This could be things like the breaking of an important level or extreme overbought or oversold conditions. This is called the setup.
The second thing is a trigger. This is the reason for entering the position, and it’s what makes a trader put their money on the line.
With all of that in mind, the following are seven examples of how an experienced swing trader would look for profit opportunities. They are:
- Alphabet (NASDAQ:GOOGL)
- SPDR Real Estate Fund (NYSEARCA:XLRE)
- Limbach Holdings (NASDAQ:LMB)
- Oncorus (NASDAQ:ONCR)
- Unilever (NYSE:UL)
- Goldman Sachs (NYSE:GS)
- Pagerduty (NYSE:PD)
Now, let’s dive in and take a closer look at each one.
Best Swing Trade Stocks: Alphabet (GOOGL)
If a swing trader looked at Alphabet the first thing they would notice is that it is overbought. This refers to the stock’s momentum. It means that it is trading at an extreme distance above it’s recent average price. This could be the setup.
The bottom part of the above chart is the Relative Strength Index (RSI). It measures momentum. As you can see, GOOGL stock was also overbought in early September. A selloff followed.
There is support for the stock around the $2,050 level. If this level breaks, it could be the trigger or catalyst for a swing trader to sell short GOOGL stock.
If this support breaks, the same level could be used as a stop out price. In other words, if a swing trader sold short GOOGL stock and it traded back above this level, they would cover or buy back the stock they shorted at a small loss.
A logical place for a profit target is the $1,800 level. The stock traded there from early November to mid-January. This means that if GOOGL stock does go lower, there will probably be buyers around that level. This means it would stop going down and the swing trader could buy back their shorted stock and make a nice profit.
SPDR Real Estate Fund (XLRE)
The first thing a swing trader would notice if they looked at the SPDR Real Estate Fund is that it just broke resistance at $38. Resistance is a large concentration of sellers who have gathered around the $38. As you can see on the chart, in June and November a selloff followed after XLRE stock reached that level.
But now, XLRE stock has broken the resistance. This means it is trading above that level. This could be both the setup and the trigger.
Buying a stock or exchange traded fund (ETF) after it breaks resistance is a common swing trading strategy. This is because it means that the sellers who created the resistance have either finished there orders or left the market. With this supply of shares out of the market, buyers will need to pay higher prices to acquire shares. This puts the stock in rally mode.
$37.75 would be a logical place for a stop out. If the stock fell back to this level it would mean that the resistance isn’t quite broken. The swing trader who bought XLRE stock just above $38 would sell at $37.75 and take a small loss.
$42 would be a logical place to sell for a profit. You can’t see it on this chart, but last February XLRE stock ran into resistance at this level. This means there’s a chance it hits resistance there again.
Best Swing Trade Stocks: Limbach Holdings (LMB)
Support is a concentration of buyers who are gather around a certain price level. When stocks reach support, swing traders could view this as a setup. If the support breaks, this could be the trigger to sell or short a stock. Broken support means the buyers have left the market and there’s a good chance the stock keeps going lower.
As you can can see on the chart, Limbach Holdings has broken support at the $12 level. This could be a trigger to take a short position. It will increase in value if LMB stock trends lower.
A logical place to get stopped out is around the $12.10 level. If it got back up there, it means the buyers have returned. The swing trader who went short would buy back their shares and take a small loss if it got back up to that level.
A logical place to buy back the shares they shorted could be the $10 level. There’s usually support at nice round levels. This means if LMB stock was to trend lower, it would probably find a bottom there.
Most computerized trading programs are based on probability theory and statistics. And they suggest that 95% of all trading should be within two standard deviations of the recent average. It a stock exceeds this threshold, swing traders would be expecting a reversion to the mean.
The black line on the above chart is two standard deviations below the recent 20-day average. As you can see, Oncorus is below it. This means that it is oversold. A swing trader could target ONCR stock because they expect it to revert to the average. In this case that would mean a rally so they would be buyers.
In this situation, being this oversold could be both the setup and the trigger.
A possible target for a profit would be if it got back to its 20 day average price. In this case, that would be around the $24 level.
A possible stop out strategy would be a timed stop out. For example, it ONCR stock doesn’t snap back after three days, the position would be sold for breakeven or a small loss.
Best Swing Trade Stocks: Unilever (UL)
The first thing a swing trader would see if the looked at Unilever is that it is oversold.
The bottom part of the chart is the Relative Strength Index (RSI) momentum indicator. As you can see, UL stock was oversold at the very end of October. A significant move higher followed.
The setup here is the oversold conditions. A trigger could be to place a buy stop order just above where UL is currently trading. This means buying a stock above the current price. It may seem counterintuitive, but means that the stop is rallying.
For example, if UL stock gets to $56, there is a good chance to the selloff is over. A swing trader would buy it if it was to reach that level.
A stop out could be at the $54 level. If UL gets there it means there is a good chance it keeps going lower. The trader who bought it at $56 would sell at $54 and take a small loss.
A profit target could be the $60 level. There is typically resistance at round levels so if UL stock gets there, it will probably hit resistance.
Goldman Sachs (GS)
Goldman Sachs has hit resistance around the $305 level. As you can see on the chart, this level was resistance in January. Thus, reaching this level again is the setup.
A trigger here to sell or go short would be a break of the uptrend line. This is the red arrow on the chart. As long as GS stock stays above this level it means the buyers are in charge.
But if the trendline breaks, it would mean the sellers are about to take over. At this point, a swing trader would sell or go short the stock. If the trendline doesn’t break, a position wouldn’t be taken.
But if a short position is taken, a good place to have a profit target would be around $275. This level was support at the end of January. There’s a good chance there is support there once more and GS stock will stop going lower.
A stop out could be around $307. If GS stock reaches this level, it means the resistance has broken and the stock could trend higher. A short seller could buy it back at this level for a small loss.
Best Swing Trade Stocks: Pagerduty (PD)
As you can see on the above chart, Pagerduty has reached resistance. Levels around $57 were resistance back in May 2019. Getting back to this level could be a setup.
The red line is two standard deviations above the recent average. PD stock is above this level as well, and it could be the trigger to sell or short PD stock.
As we have seen, stocks tend to selloff if they don’t break resistance. They also tend to revert to the mean if they reach an extreme distance above the recent average. In this situation, that would mean selling.
A stop out could be placed at $59. If PD stock reaches this level, it means that resistance has broken and it will probably continue to trend higher. The trader who shorted PD stock at $57 would buy back the shares they sold short for a small loss.
A profit target could be $51. This is logical because its three times larger than the potential loss.
At the time of this publication, Mark Putrino did not have any positions (either directly or indirectly) in any of the aforementioned securities.