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Finding the Best Swing Trading Candidates

Finding the Best Swing Trading Candidates

When swing trading, one of the first things a trader needs to do is find a good list of stocks or instruments to prospect from.  When looking for stocks that are conducive to swing trading, you could generally use the index stock lists such as the Russell 1000, S&P 500 and the S&P 100.  The stocks you want to trade are those that have higher high and higher low pivots (Swing Bulls) and lower low and lower high pivot points (Swing Bears).  If you are an owner of the Ultimate Swing Trading Package 2 we provide you with a great custom list that gives you a nice starting point.

right-thing-to-trade

A good symbol list is a must when Swing Trading. The list must find stocks that are in a trending market or a ranging market.

Here at Nirvana, we have developed strategies for over a decade that are extremely effective at finding good swing trading candidates.  These strategies include; The Reversal Strategy, the WaveTrader strategies, the Advanced Cycle Trader EOD strategies, the Hurst Cycle Trader, XLS-19, the T-3 strategies and the iTLB strategies.

For this post, I am going to concentrate on using a combination of five different strategies at various times based on the mode of the general market.  Those individual strategies are; the Base OmniTrader Reversal Strategy, the Advanced CycleTrader (ACT) EOD Strategy, the WaveTrader Trending Strategy, XLS-19 and the the T-3 strategies.

The Base OmniTrader Reversal Strategy

First let’s take a look at the OmniTrader Reversal Strategy.  The base OmniTrader Reversal Strategy uses 35 different trading systems in a voting process in order to find good Reversion to Mean (RTM) candidates.  The vast majority of the systems are oscillators, so they are designed to find short term overbought and oversold conditions.  This strategy can be used in both trending and trading range markets, making it very useful.

slb-reversal

This chart shows the base OmniTrader Reversal Strategies on SLB over the past year.

The Advanced Cycle Trader EOD Strategy (ACT)

The Advanced Cycle Trader (ACT) uses adaptive systems in order to find the current market cycle.  It then looks to fire off reversal signals at cycle tops and bottoms.  Special filters in this strategy keep this strategy from firing signals in trending markets.  The ACT EOD is best suited to finding RTM trades in trading range markets.  It can be used in trending markets, but trading ranges are its bread and butter.

pfe-act

This chart show the ACT EOD strategy’s signals on PFE for most of 2016. Notice how it does not fire any signals while the stock is trending.

 

The WaveTrader Trending Strategy

The WaveTrader Trending Strategy looks for higher lows in upward trending markets and lower highs and downward trending markets.  This strategy is based off of the same Zig Zag indicators that we discussed when talking about determining the market mode.  That makes it an easy choice to use to identify new swing trades.  The WaveTrader Trending Strategy finds RTM trades mostly but it can identify breakouts as well.  WaveTrader is mostly used in trending markets.

nsc-wavetrader

The WaveTrader Trending Strategy uses the WaveTrader ZIG ZAG indicator for signal generation. You can see this demonstrated by the signals on this chart of NSC.

XLS-19

This strategy looks for sizable pullbacks against the primary trend, which leads to BIG short term profits.  XLS-19 is our latest Reversion to Mean (RTM) strategy. It is perfect compliment to the T-3 Power Suite as it fires different long trades and adds short trades as well.

cl-xls-19

XLS-19 looks for significant pullbacks in trending markets to make big short term profits on RTM moves as demonstrated on this chart of CL.

The T-3 Power Suite

The T-3 Power Suite is actually three strategies that generate great long swing trades. T-3 was first released in  2010 and it was one of our first Reversion to Mean strategies published.  They have been refined over the years and when used in tandem, they find amazing long swing trades.

fb-t-3

T-3 looks for higher low pullbacks in upward trending markets as seen here on this chart of FB.

So a quick breakdown on all of the strategies:

Strategies to use for RTM trades in a trending market:

  • WaveTrader Trending Strategy
  • OmniTrader Reversal Strategy
  • T-3 Power Suite
  • XLS-19

Strategies to use for RTM trades in a range market:

  • Advanced Cycle Trader EOD
  • OmniTrader Reversal Strategy
  • T-3 Power Suite
  • XLS-19

Strategies to use for breakout trades in any market:

  • XLS-19
  • WaveTrader Trending Strategy
  • OmniTrader Reversal Strategy

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Confirming the Trade

So now that we have our correct market mode identified and we know what strategy to use, we need confirm our signals.  How does one go about doing that you may be asking?  That is a very good question because signal confirmation is extremely important.  We want to take trades that pose us the least amount of technical risk and we also want to take the trades that have the most advantageous reward to risk ratios.  One of the great things about RTM trades is that they offer several different ways to confirm the trades that have the best chance to succeed.

The first thing to do is to avoid stocks that are reporting earnings!  Stocks that are reporting earnings in the coming days should be avoided for two big reasons.  One reason is that the earnings announcement could cause the stock to gap big-time overnight.  Of course it could gap in your favor, rewarding you handsomely, but if it gaps in the other direction, you’re in for a hurting.  As attractive as that huge positive gap seems, we want to stay away from even the slightest chance of getting pounded by a bad report.  Price action can also slow down heading into earnings calls which makes it harder for us to reach our profit target.  So keep an eye out for those earnings reports and for any other market moving news event that may cause a reaction in price.

As we can see, C has been in a solid uptrend since the summer began. It is now showing signs of forming a new higher low, which we look for when swing trading, but because it is reporting earnings it is not a good candidate for a swing position.

 

Next we need confirmation on the market mode.  Here we are making sure that the stocks we are looking into are in a mode that is in-line with the overall market.   In short, go short in bearish markets, go long in bullish and look for both opportunities in a ranging market.  Easy enough.

Also, don’t forget those pivots!  Pivot analysis shows us probable support and resistance levels that will help give us further trade confirmation.  For a long position, we need enough room to snag enough profit before the stock becomes overbought and tests resistance.  The opposite is true with short trades.  Also, if you’re taking a long position for example, you can make an RTM trade with the assumption that the recent low will be acting as the current level of support.  The exact opposite is also true when taking short RTM positions.

intc-market-mode

Since we have been in a bull market for most of 2016, we are going to look for bullish swing trades. INTC corresponds with the upward trend market mode and is considered a good swing trade candidate.

Reward to Risk Ratio

Next you need to use the reward to risk ratio as another way of confirmation.  Obviously, we want to find the best trades that have the most favorable reward to risk ratios.  The better the reward to risk ratio is, the less amount of times you need to be correct.  But finding ratios like 2:1, 3:1, 4:1 is not easy to do a good bit of the time.  So if other conditions are being met, it’s okay to look at and consider trading a stock that has a 1: ratio.

lly-risk-reward

The Reward Risk Toll can be used to find out if there is enough of a profit to loss ratio to take a trade.

Swing Trading Breakouts

Now, on to breakout confirmation.  Trading breakouts can be tricky but some of the same confirmation techniques that work for RTM trades also work on breakouts.  Once again, we need to confirm that the trend mode of the market is in-line with the direction of the trade we want to take.  We also want to avoid those earnings dates and any event that may cause price to jump.  Where things take a turn on the breakout trade is on the reward to risk ratio step.  Because of new recent highs being made (or recent lows if it’s a bearish breakout) we can’t accurately measure the reward to risk ratio.  You also want to keep an eye on volume, which tells you if the market is participating in the breakout.

Volume and Price Movement

When the bars that signals have been fired on align with large amounts of volume, we have confirmation that the market is joining in on the move.  The signal bar should be moving through resistance and making new recent highs.  One thing you will need to be aware of while swing trading breakout moves is what we call a “rest bar”.  Once a big breakout happens, a good bit of the time there is a period of rest where the market calms down and price movement stalls.  This rest period can vary in length from one day to a couple.  In some cases though, no rest period happens at all.  Another thing to look for is bars that fall back into the previous range.  These are not rest bars; these are false breakouts and should be avoided.

oxy-volume

This chart demonstrates how large amounts of volume can correspond with breakout moves.

In Conclusion

Wow.  We covered quite a bit.  So let’s sum it all up in short.

  1.  There several lists that we can use to find swing trading candidates.  Some of those are:
    • The major indexes.
    • Our Swing Bull and Swing Bear lists that are provided in the Ultimate Swing Trader Package 2.
    • Any stocks that have a good amount of liquidity and volume.
  2. We use five different strategies to find candidates.
    • Strategies used depend on the broad market.
    • Start with minimal amount of strategies to prospect and add more as needed.
  3. You can confirm a RTM trade in several steps.
    • Confirm trend direction.
    • Confirm there is enough potential profit before meeting support or resistance.
    • Make sure price is close to recent loss so the stop loss is not too large.
    • Never trade into an earnings report.
  4. Breakouts can also be confirmed in several steps.
    • There us price and volume momentum.
    • Confirm the trend direction.
    • The potential resistance level has been breached while not being too far away from the resistance level.
    • There is not a major chart pattern present to hold back the move.
    • Earnings are not coming out.

So there we have it.  If you can’t get enough of swing trading come join us live and trade with us.  If you score the Ultimate Swing Trader Package 2, you will be able to access live trading sessions featuring myself, Jeff Drake and Ryan Olson.  Check out the package here!

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