Everyone comes to the stock market to earn some passive income. There are people who have become billionaires by investing in this market. There are different types of trades carried out in the market. You can do intraday trading where you buy and sell a stock in the same day, you can do swing trading where you keep the stock in your demat account for a few days to few week, or you do investing where you keep the share in your account for five to ten years. Whichever trading you want to follow, you should open your demat account with a good stock broker.
1. Market direction
You should never trade against the market, especially if you are a new trader. The thumb rule is that if the stock is rising in the current market scenario, it will continue to rise if all the parameters remain unchanged. Before buying a stock for swing trading you should find out the trend of the stock and then play as per the trend.
Liquidity is very important when you are doing swing trading. Liquidity means the number of shared traded at a particular time frame. If the stock is highly liquid, it means the stock has good demand in the market. Liquidity is a measure of how frequently the stock is trading in the market. If the stock is highly liquid then the risk exposure is quite less in that stock.
In swing trading you want to capture the big move. For example, you know that monsoon is coming. Your analysis says that FMCG sector is going to do well if monsoon is good. Now you cannot buy all the shares in FMCG sector. You will have to identify those shares that will be able to outperform the rest. You need to select the winner among winners. This is why performance is very important when selecting stocks for swing trading.
4. Repetitive trading pattern
Traders want to trade in stocks that shows repetitive trading pattern. If a pattern is repeating again and again in a particular stock and that stock is reacting well to that pattern, that means it is potential fit for swing trading. You need to understand that not all stocks behave similarly to the same pattern. Some will follow the pattern, some not. It is your duty to find out which stocks react how to which pattern.
5. Correlation with the benchmark indices
There may be stocks that are rising when the market is falling. You need to be very experienced if you want to take such a trade. Generally, you should try to go with the benchmark indices. Consider swing trading only when the market is bullish. This way you can reduce your risks.
To sum up
These were some simple tips that can help you to master swing trading. Remember that trading is a difficult game, you need to have patience to master it. If you don’t have a trading account, you are missing on a lot of fun; open one with 5paisa.