Why Liquidity Matters for Swing Trading?

Liquidity matters for swing trading because it facilitates swift and efficient entry and exit of stocks, which is critical for managing risk and seizing opportunities. Individual investors benefit from liquidity since their trades do not significantly move the market.

This flexibility is an advantage for managing the risk/reward relationship effectively. Liquidity provides the ability to adjust positions promptly, which is crucial for lowering portfolio volatility and limiting drawdowns​.

Highly liquid stocks are also targeted by large institutions. By targeting stocks with institutional interest, you’ll be focusing on the kind of shares that attract big players in the market.

When swing trading, liquidity is key – It ensures you can enter and exit trades without major price slippage. When using any swing trading screener make sure to add basic liquidity criteria.

Additionally, liquidity reduces the risk of being unable to sell a position if the stock moves against you while highly liquid stocks tend to follow technical patterns more reliably. This allows traders to execute trades confidently based on chart analysis without significantly impacting the market price.

How to Use the Highest Daily Volume Edge

When a stock breaks out from a base or moves significantly in price, high volume serves as a confirmation that the movement is genuine and supported by strong market participation. Stocks experiencing consistent high volume during price increases often signal strong demand, which can lead to continued upward trends.

High volume also often indicates that institutional investors are actively buying or selling stock and leave their “footprint” on charts when you see huge volume spikes. When swing trading, you want to navigate quickly in front of large institutions as they begin accumulating shares.

The Highest Volume Edge looks for 4 important characteristics:

1. Highest Daily Volume Ever
2. Highest Daily Volume since IPO
3. Highest Daily Volume in a Year
4. Highest Daily Volume since Last Earnings

This Screener Preset utilizes the “OR” function to scan for all stocks exhibiting any of the Highest Volume conditions.

High volume adds to the liquidity factor and can be a sign that a stock has momentum and is attracting attention, which may lead to sustained price movements. For swing trading or other short-term strategies, these factors make high volume a critical component in identifying viable opportunities.

How to Find Stocks Showing Relative Strength

Relative strength is important because it measures how a stock or sector is performing compared to the overall market, providing a key indicator of its strength or weakness. Stocks with strong relative strength outperform the market or their peers, indicating that they are likely to continue leading during bullish phases.

During downtrends, stocks with strong relative strength are often the first to rebound when the market recovers. By focusing on stocks with strong RS, traders can identify potential swing trading opportunities early.

When the RS Line is at highs, the stock has been outperforming the market, and pay close attention to stocks with RS lines making New Highs Before Price. Change the timeframe to align with the current market conditions and your trading style.

Strong relative strength often reflects institutional buying, as large-scale buying drives stocks higher relative to the market or sector averages. High relative strength in a stock can confirm that the market sentiment is positive for that sector or type of stock, providing added confidence.

High RS can confirm that a stock’s upward trend is robust and likely to continue. Screening for high relative strength allows swing traders to focus their attention on stocks with the best potential for strong performance.

Why 52-Week Highs Matter in Swing Trading

In swing trading, 52-week highs are significant because they often signal strength, momentum, and potential for further gains. Stocks reaching a 52-week high often demonstrate strong demand, suggesting robust buying interest.

Stocks that break out to new highs, particularly from sound bases, are often in strong uptrends and have the potential to continue making new highs. By focusing on stocks making new 52-week highs, traders steer clear of laggards with weak performance or those stuck in downtrends.

A 52-week high can act as a psychological level, drawing attention from traders and investors. Stocks achieving this milestone often see increased trading activity, which may create opportunities for swing traders to capitalize on the momentum.

At a 52-week high, there are no previous buyers stuck at higher prices who might sell to break even. This creates a “blue sky” scenario where the stock can move freely without significant selling pressure.

Focusing on 52-week highs helps swing traders capitalize on stocks with the highest potential for strong, sustained upward moves while minimizing the risks associated with overhead resistance and weak relative performance.

How Gap-Ups Signal Opportunity for Swing Traders

Gap-ups signal opportunity in swing trading because they represent sudden and strong price moves that often indicate significant changes in sentiment, demand, or market conditions. Oliver Kell states: “The Street is caught off guard” when there is a significant gap up.

Gap-ups typically occur when buying demand far outweighs selling pressure, often driven by positive news, earnings surprises, or market conditions. This strong demand indicates momentum, which can provide opportunities for short-term gains.

When a gap-up occurs near a breakout from a consolidation pattern or a key resistance level, it often confirms the breakout’s validity. This is especially true if accompanied by high volume, a hallmark of strong institutional interest.

Gap-ups accompanied by strong volume and a high Daily Closing Range reduce the likelihood of a false breakout. Closely monitor these gaps for follow-through strength in subsequent trading sessions.

Gap-ups can present actionable opportunities, particularly when they break out from sound base formations, and display strong relative strength. By focusing on gap-ups in the right market context, swing traders can identify and act on high-probability opportunities that are likely to continue higher.

Why Stocks Up on Down Days Stand Out

Stocks that rise on down days stand out because they exhibit exceptional relative strength. This phenomenon often signals that a stock has strong underlying demand and is being accumulated by institutional investors, making it a prime candidate for swing trading.

Stocks that resist market pressure are typically supported by strong fundamentals or catalysts that make them less susceptible to broader market trends. These stocks tend to lead the next market rally because they are already exhibiting leadership qualities and attracting significant investor attention.

Stocks that rise on down days frequently precede a breakout from a basing pattern or other bullish formation. Identifying this behavior early allows traders to position themselves ahead of a potential surge.

When a stock rises against the tide, it boosts confidence in its ability to maintain upward momentum, making it a preferred choice for swing trading opportunities. Stocks that move higher despite overall market weakness is a key attribute of potential market leadership.

Focusing on such resilient stocks can help traders align with market leaders that are more likely to deliver superperformance during uptrends​​. They exhibit resilience and can be excellent candidates for swing trading or longer-term positions.

Using Volume Spikes to Find Strong Stocks

Using volume spikes to find strong stocks is a powerful technique because volume spikes indicate unusual trading activity, often reflecting institutional buying or significant shifts in sentiment. Volume is emphasized as a key indicator to validate price movements and identify potential winners, particularly during breakouts.

Volume spikes during a price breakout confirm that the move is supported by widespread buying, not just thin or speculative trading. This indicates a higher probability of sustained price momentum.

A sudden surge in volume is often a sign of institutional buying or selling. Institutions trade in large blocks, causing noticeable spikes, particularly when they are initiating or adding to positions.

Volume spikes reflect market conviction. Price movements without volume are unreliable, while those accompanied by high volume indicate strength and sustainability.

Volume spikes can indicate that a stock is beginning a new trend or phase of growth. By focusing on stocks with volume spikes, swing traders can identify opportunities aligned with strong demand and market leadership.

Why Stocks That Double are Worth Watching

Stocks that double in price are worth watching because they often exhibit characteristics of strong leadership and can provide insights into market trends and potential future opportunities. Top-performing stocks often go through multiple phases of price appreciation and could enter another stage of growth after consolidating or breaking out of a new base.

Many stocks that double in price may still have significant room to grow, especially if the increase is supported by strong earnings, revenue growth, and institutional buying. Doubling in price often identifies a stock as a market leader as they tend to outperform in ideal market conditions attracting continued investor attention.

Stocks that double in price frequently show exceptional relative strength, outperforming the broader market. These stocks often lead their sectors and the overall market higher.

Stocks that have doubled should still meet other trading criteria, such as strong relative strength, sound base formation, and favorable risk/reward setups, before being considered for trades. Be cautious of “late-stage” moves in stocks that are overextended, as these can lead to sharp reversals.

Stocks that double are often fueled by strong earnings, compelling stories, or sector leadership, making them attractive for continued price action. By monitoring stocks that have already doubled, swing traders can identify candidates for further evaluation and potentially capture additional gains.

How High Average Daily Range Helps Swing Traders

A high Average Daily Range (ADR) is beneficial to swing traders because it indicates that a stock has significant price movement within a single day, which can translate into profitable short-term opportunities. High ADR reflects higher price volatility, which can be advantageous for traders looking to capitalize on rapid price swings.

Stocks characterized by a high Average Daily Range frequently draw increased trading volume and the attention of active traders. This heightened activity leads to greater liquidity, as swing traders are particularly on the lookout for stocks that exhibit rapid price movements.

High ADR stocks are more likely to align with momentum-based trading strategies, where large moves are key to profitability.

While high ADR is attractive, it also comes with the potential for higher risk due to increased volatility. Proper risk management, such as setting stop-loss levels and sizing positions appropriately, is crucial to avoid significant losses.

High ADR stocks offer the volatility needed to capitalize on short-term price movements, aligning perfectly with swing trading strategies. Swing traders using high ADR stocks should focus on stocks that demonstrate controlled volatility, strong trends, and other characteristics like relative strength and institutional accumulation​​.

How to Trade the 21EMA Pullback

Trading a pullback to the 21-Day Exponential Moving Average (21EMA) is a common technique for capturing opportunities within a trend. The 21-Day EMA is a powerful tool for swing trades to identify and trade strong stocks during temporary dips.

The 21EMA acts as a dynamic support level in trending stocks. It reflects the short- to medium-term strength of a trend and is frequently used by institutions and traders as a key reference point.

Identify a Strong Trend: The stock should be in a well-established uptrend, typically showing strong relative strength and supported by institutional buying.
Wait for the Pullback: Look for a controlled and orderly pullback to the 21EMA.
Volume Analysis: During the pullback, volume should contract, signaling a lack of aggressive selling indicating institutional support.
Look for a Bounce: Wait for the stock to stabilize and bounce off the 21EMA confirming that buyers are stepping back in.
Entry Point: Enter the trade as the stock reclaims the 21EMA and shows signs of renewed momentum with an increase in volume.
Set a Stop-Loss: Place a stop-loss slightly below the recent pullback low or a predetermined percentage below the 21EMA, depending on your risk tolerance.
Monitor Follow-Through: After entering, watch for the stock to follow through with additional gains.

The 21EMA acts as a dynamic support level in trending markets. It captures the stock’s shorter-term momentum within the broader trend, offering precise entry points with defined risk.

This strategy is especially effective for swing traders looking to capitalize on short-term price movements within a longer-term bullish trend.

Counting Relative Strength Days on Leading Stocks

Counting Relative Strength (RS) Days is important because it helps traders identify stocks that exhibit consistent outperformance relative to the broader market or their sector. RS Days provide a clear signal of sustained demand and potential for further gains.

By counting the number of days a stock demonstrates relative strength (i.e., outperforming the market or its peers), traders can determine whether the stock is establishing a trend that could lead to significant gains. Stocks showing recent RS days over 60% of the time signifies that the stock is a leader in the market, attracting institutional interest and likely to continue outperforming.

Stocks that show RS days during a market downturn are often the first to rally when the market recovers. Tracking these days helps traders position themselves in potential market leaders early.

Counting RS days helps separate truly strong stocks from those merely benefiting from broader market rallies. A stock with consistent RS days is more likely to perform well, even in choppy or weak markets.

By focusing on the frequency and consistency of relative strength days, traders can align themselves with stocks that have the greatest potential for further gains. Swing traders must ensure they focus on stocks with proven strength and avoid those that are likely lag the overall market.

Putting It Together

Swing Trading targets rapid price movements as stocks move between consolidating bases. Capitalize on strong price trends by entering stocks breaking out of basing formations during ideal market conditions.

Here’s how to refine your strategy:

• Focus on stocks with high trading volume for easier entry and exit.
• Look for Relative Strength to identify stocks outperforming the market.
• Use tools like the 21EMA, gap-ups, and volume spikes to confirm trends.
• Pay attention to new highs and stocks that double to find the strongest performers.

By combining these techniques, you’ll be better equipped to capitalize on the best price swings in the market.