Having a strategy in place is necessary when doing stock market investments. Stock prices change instantly. However, a sudden price swing does not necessarily mean you may bear a loss. If you set up your entry and plan your exit from the trade at the right time, you stand a chance to make reasonable profits from price swings. You need to be both smart and cautious when investing in stocks.
Swing Trading is the most popular stock market strategy that investors opt for. It aims to make quick profits from price swings. It can last anywhere between a few days to weeks. You should sit tight and make a trade when the right opportunity arises. Picking the right stock for it is crucial. It sets the foundation for a profitable trade. Following are other pointers for choosing the perfect stock:
Review the stock’s performance
This should be your primary consideration when trading. Know about the stock’s current performance. Review its historic performance. If you observe the stock is consistently performing well, it is a suitable choice.
Look for high liquidity
As mentioned, Swing Trading is done for a few days or weeks. Hence, opt for a highly liquid stock. To decide the liquidity of a stock, check its daily trading volume. If the volume is high, it is considered highly liquid. This also indicates lower risk exposure, which works in your favour.
Consider the market trend
Always consider the ongoing market trend before trading. If the market is following an upward trend and the stock performs well, then it will continue the same way. If the market trend changes it could affect the stock price. Therefore, be aware of the ongoing market trend. You can grasp this by checking the stock exchange's respective indices.
Most investors prefer investing in stocks that show a repetitive trading pattern. This is because a repetitive pattern is more reliable. You need not wrack your brain to decide on an appropriate entry and exit point. Typically, maximum investors enter a trade when the stock price breaks the trading range. While they are within the trading range, they make several small valued trades to gain reasonable profits.
You should be mindful of market volatility. Markets are highly unpredictable. Avoid investing if the market volatility is too high. Once you have selected a stock for trading, reach out to your stockbroker to place an order. You receive the stock on your Demat Account. What is Demat Account? It is a depositary account that holds your stocks and other securities electronically.