Swing trading is one of the most popular strategies in the world of stock trading. As a swing trader, I aim to capitalize on price swings over a short to medium period, typically holding stocks for anywhere between a few days to several weeks. In order to succeed with swing trading, I need to find the right stocks that have the potential for strong moves within a particular timeframe. Stock scanning is an essential part of this process, as it helps me filter through thousands of stocks and identify those with the best chances of delivering profitable trades.
In this guide, I’ll walk you through the key techniques and tools I use to scan stocks for swing trading, along with examples and tips that will help you make informed decisions.
Table of Contents
What is Stock Scanning?
Stock scanning is the process of using various criteria and filters to identify stocks that match specific trading patterns, technical indicators, and price movements. For a swing trader, scanning helps to narrow down a list of potential candidates that are likely to experience significant price moves in the near future. Scanning can be done manually or through automated systems that track market data in real-time.
For me, a successful stock scan doesn’t just identify stocks with potential. It should also help me avoid stocks that don’t fit my risk profile or trading strategy. Over time, I have fine-tuned my scanning process to ensure I’m only focusing on stocks that meet my criteria.
Key Factors to Consider When Scanning Stocks
Before diving into the specifics of stock scanning, it’s crucial to understand the factors that I prioritize when selecting stocks for swing trading. Here are some of the most important elements I take into account:
1. Trend Identification
I look for stocks that are either in an uptrend or downtrend. A stock in an uptrend is more likely to continue moving higher, while a stock in a downtrend may offer opportunities to short or catch a reversal.
- Uptrend: Higher highs and higher lows.
- Downtrend: Lower highs and lower lows.
A simple trend-following approach helps to weed out stocks in sideways markets, where price movement may be too slow or unpredictable.
2. Volume
Volume is a crucial aspect of any trade. I pay close attention to stocks with increasing volume, as this often signals a strong move in the stock’s price. Low volume stocks tend to have less liquidity, making it harder to enter and exit trades efficiently.
I typically look for stocks that are showing an increase in volume compared to their average daily volume. A sudden spike in volume could indicate that something significant is about to happen with the stock.
3. Volatility
Volatility is the degree of variation in a stock’s price over time. For swing trading, I look for stocks with moderate to high volatility. These stocks offer more price movement, which is essential for making profits in swing trades.
Stocks with low volatility can be too stagnant for profitable swing trades, while stocks with excessively high volatility can be riskier to handle. Therefore, I target stocks with volatility levels that align with my risk tolerance.
4. Technical Indicators
Using technical indicators helps me assess the stock’s potential movement based on past price action. Some of the indicators I rely on include:
- Moving Averages: I often use the 50-day and 200-day moving averages to assess the stock’s trend. If the 50-day moving average is above the 200-day, I consider the stock to be in an uptrend.
- Relative Strength Index (RSI): I use the RSI to identify overbought or oversold conditions. An RSI above 70 signals overbought conditions, while an RSI below 30 suggests oversold conditions. These extremes can often signal potential reversal points.
- MACD (Moving Average Convergence Divergence): The MACD helps me identify momentum shifts. A bullish crossover (when the MACD line crosses above the signal line) can indicate a potential buy signal, and a bearish crossover (when the MACD line crosses below the signal line) can suggest a sell signal.
5. Support and Resistance Levels
Support and resistance are key levels where the stock price tends to reverse or consolidate. By identifying these levels, I can set entry and exit points with more precision. When a stock breaks through resistance, it can signal a bullish move, and when it falls below support, it may indicate a bearish trend.
Setting Up a Stock Scan
Now that I have a good understanding of the factors I consider when scanning stocks, let’s discuss the process of setting up an effective stock scan. I typically use stock scanning tools available through online brokerage platforms, which allow me to filter stocks based on a variety of criteria.
Step 1: Choose a Scanning Platform
There are many platforms available that provide stock screening tools, such as:
- Finviz: A popular choice for its robust filtering options and user-friendly interface.
- TradingView: Known for its charting capabilities and stock screener.
- ThinkorSwim: A comprehensive platform that offers advanced scanning features.
Each platform offers different features, so I choose one based on my specific needs.
Step 2: Define My Scan Criteria
Next, I define the criteria I want to use to filter stocks. Here are some common parameters I use:
| Criterion | Description | Recommended Range |
|---|---|---|
| Price | The current price of the stock. | $5 – $100 |
| Volume | Average daily volume over the past 30 days. | > 500,000 shares |
| RSI | The Relative Strength Index. | 30 – 70 |
| Moving Average (50-day) | Price relative to the 50-day moving average. | Price > 50-day MA |
| Volatility | The stock’s average true range (ATR). | 1% – 5% daily movement |
| Market Cap | The total market value of the company’s outstanding shares. | > $1 Billion |
Step 3: Apply Filters and Run the Scan
Once I’ve set the criteria, I apply the filters and run the scan. The stock screener will generate a list of stocks that meet my specifications. This is a great starting point to dive deeper into individual stocks for further analysis.
Step 4: Refine the List
After running the scan, I often refine the list by adding more specific technical criteria. For example, I may look for stocks that are near key support levels or have a recent bullish crossover in the MACD.
Example: Running a Scan for Swing Trading
Let’s say I’m scanning for stocks with the following criteria:
- Price between $10 and $50.
- RSI between 30 and 70.
- 50-day moving average above the 200-day moving average.
- Average volume greater than 500,000 shares.
After running the scan, I get a list of 20 stocks. I’ll now analyze the price charts for these stocks to identify any potential entry points. If I see a stock bouncing off a key support level and showing a bullish MACD crossover, I may decide to enter a long position.
Risk Management for Swing Trading
Risk management is crucial in swing trading. Even if a stock meets my scanning criteria, I must assess the risk involved before placing a trade. Here are some key risk management practices I follow:
- Position Sizing: I never risk more than 1-2% of my total capital on a single trade.
- Stop-Loss Orders: I always set a stop-loss order to limit my potential losses. This ensures that if the stock moves against me, I can exit the position before losing too much.
- Take-Profit Orders: I set target levels where I plan to take profits, based on key resistance levels or a predetermined percentage gain.
Example of Risk Management:
If I decide to enter a stock at $30 with a stop-loss at $28 (2% below the entry), I would risk $2 per share. If I have 100 shares, my total risk is $200. If I target a 10% gain, I would set a take-profit order at $33, potentially making $300.
Conclusion
Stock scanning for swing trading is both an art and a science. By using a combination of technical indicators, chart analysis, and filters, I can identify stocks that have the potential to generate profits in a short timeframe. I’ve found that a methodical approach to scanning, combined with sound risk management, is the key to success in swing trading.
With practice, I’ve learned to refine my scanning process to suit my trading style. The key is to remain patient, disciplined, and systematic in my approach. If I follow these steps and stick to my plan, I can consistently identify high-potential swing trading opportunities and make informed decisions.
I hope this guide helps you understand how to scan stocks effectively for swing trading. By implementing these strategies, you’ll be able to filter out the noise and focus on the opportunities that align with your trading goals.
