Best Stocks for Swing Trading to Invest in India for 2024: Complete Guide

by Abhishek Banerjee

Published On May 24, 2024

In this article

Stock market returns leave you wanting more compared to the slow and steady climb of fixed-income securities. But what if there was a way to potentially boost your returns by capitalising on the stock market's natural ups and downs? Enter swing trading, a strategy designed to capture short-term price movements in stocks. Unlike day trading, which involves buying and selling within a single day, swing trading allows you to hold positions for days, weeks, or even months. This can be a great way to potentially generate higher returns while requiring less time commitment than day trading.

The key to successful swing trading lies in finding the right stocks. Not all companies are created equal, and some offer better swing trading opportunities than others. This article will equip you with the knowledge to identify the best swing trading stocks in India for 2024. We'll explore the essential criteria for selecting swing trading stocks, helping you navigate the market and potentially uncover hidden gems with strong short-term price movement potential.

What is Swing Trading?

Swing trading involves holding a position for one day to a few weeks, utilising technical analysis to make informed decisions. Unlike day trading, which involves buying and selling within a single day, or long-term investing, which involves holding positions for months or years, swing trading seeks to benefit from the natural "swings" in asset prices.

Essentially, it focuses on identifying potential price movements and profiting from them. A swing trader will look for stocks with high volume and price movements. Setting up stop-loss orders to limit potential losses is good practice. This is usually done through supports and resistance levels.

Swing Trading can be broadly classified into two categories:

  • Counter-Trend Swing Trading: Profiting by trading against the current market trends.

  • Trend Following Swing Trading: Going with market trends, buying during uptrends and selling during downtrends.

How Does Swing Trading Work?

Swing traders aim to capture price movements in either direction—up or down—by going long (buying) or short (selling) in the market. These traders often rely on technical analysis to make informed decisions. Here are the four critical components of a swing trade setup:

  1. Direction to Trade: Long or Short

  2. Market Entry Point

  3. Profit-Taking Price

  4. Stop-Loss Price

Using Technical Analysis For Swing Trading

Technical analysis, which includes using patterns and indicators to predict trends, is crucial for swing traders. It is a cornerstone of swing trading due to the focus of swing traders on price patterns and market trends within specific time frames. Swing traders use various tools and indicators, such as moving averages, Relative Strength Index (RSI), and Fibonacci retracements, to determine optimal entry and exit points.

For instance, a swing trader might use a moving average crossover strategy to identify a potential upward trend. When the shorter-term moving average crosses above the longer-term moving average, it signals a buy opportunity. Conversely, when the shorter-term moving average crosses below, it signals a sell opportunity.

Using Fundamental Analysis For Swing Trading

While primarily relying on technical analysis, swing traders may also use fundamental analysis to add context to their trades. For example, a trader might decide to trade a particular stock based on a favorable earnings report or positive news about the sector. However, the actual entry and exit points will still be determined using technical analysis.

Common Price Patterns in Swing Trading

Swing traders rely on recognizing certain price patterns to make informed decisions. Here are a few common ones:

  1. Ascending Triangle: Indicates a potential upward breakout.

  2. Descending Triangle: Suggests a possible downward breakout.

  3. Pennant: Signals a continuation of the prevailing trend.

  4. Bearish Flag: Indicates a potential continuation of a downtrend.

  5. Bullish Flag: Suggests a potential continuation of an uptrend.

Difference between Swing Trading & Day Trading

Swing trading and day trading are both short-term strategies aimed at achieving profits, but they differ significantly in several aspects:

Aspect

Day Trading

Swing Trading

Trading Duration

Seconds, minutes, or hours within a single day.

Several days to weeks.

Trading Frequency

High frequency, multiple trades per day.

Lower frequency, fewer trades over days or weeks.

Size of Returns

Smaller, more frequent gains.

Larger gains from fewer trades.

Market Analysis Style

Primarily technical analysis for short-term price movements.

Combination of technical and fundamental analysis.

Let’s understand each in depth.

Day Trading: In-Depth

Day traders seek to enter and exit trades within the same day, capitalizing on intraday price movements. They often use technical indicators like moving averages, RSI, and MACD to make quick decisions. The ultra-short time frame means day traders aim for small, frequent profits unless a major news event causes significant price movement.

For instance, a day trader might capitalize on a stock's volatile reaction to an earnings report, entering and exiting multiple positions within the same trading session to exploit sharp price fluctuations.

Swing Trading: In-Depth

Swing traders hold positions for days or weeks to capture medium-term price movements. They use technical analysis to identify entry and exit points and may incorporate fundamental analysis to understand broader market trends. Swing trading allows for larger price action, sensitive to fundamental developments.

For instance, a swing trader might buy a stock at a support level, anticipating a rise to a resistance level over the next few weeks based on positive earnings forecasts and a bullish chart pattern.

Difference between Swing Trading & Long-Term Position Trading

Swing trading occupies a middle ground between day trading and long-term position trading. Here’s how it compares:

Aspect

Long-Term Position Trading

Swing Trading

Trading Duration

Weeks to months, sometimes longer.

Several days to weeks.

Market Analysis Style

Focuses on long-term fundamental analysis and market trends.

Balances technical setups with a fundamental outlook.

Price Swings

Holds through multiple smaller swings for long-term gains.

Trades individual swings within the broader trend.

Benefits of Swing Trading Stocks

By far the greatest benefit of swing trading over day trading is the lack of constant monitoring of stocks. As the investment period is over a day, there is no need to be glued to moneycontrol or other screeners. It also allows for extended flexibility in terms of time committed to it as traders can join in without the need for monitoring. It is suitable for part time traders. Swing traders can benefit from both upward and downward trends. The use of market trends coupled with extended holding periods allow for better risk management when compared to rapid price changes in day trading.

  1. Supplement Long-Term Investments: Swing trading can complement your long-term investments by providing additional opportunities for profit within shorter time frames.

  2. Frequent Opportunities: Markets offer numerous short-term price movements. Swing trading allows you to capitalize on these frequent opportunities without the need for constant monitoring like day trading.

  3. Potential for High Returns: By capturing the price swings over days or weeks, swing traders can achieve significant returns on their trades.

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Best Stocks for Swing Trading

Swing traders often use indicators like Simple Moving Averages (SMA), Exponential Moving Averages (EMA), Moving Average Convergence Divergence (MACD), and Relative Strength Index (RSI) to analyse stocks.

Here is a list of some of the best stocks to swing trade in India for 2024:

STOCKS

INDUSTRY

DMART

Retail

BALKRISIND

Tire Manufacturing

SUNTV

Media

HDFCBANK

Banking & Finance

TATAMOTORS

Automobiles

How to Select Stocks for Swing Trading?

When choosing stocks for swing trading, it is important to consider the following factors

  1. Liquidity: This refers to how easily you can buy and sell the stock. Look for stocks with high daily trading volume, which ensures you can enter and exit positions smoothly without significant price impact.

  2. Volatility: Swing trading thrives on price movement. Choose stocks with some inherent volatility, but avoid excessively volatile stocks that can be unpredictable.

  3. Trend: Identify stocks in a clear uptrend or downtrend. This increases the probability of the price movement continuing in your favour during your holding period. Tools like chart patterns and technical indicators are fundamental to help identify trends.

  4. Relative Strength: Look for stocks that are outperforming their sector or the broader market. This suggests the stock has underlying strength and might continue its momentum.

  5. Company Fundamentals: While swing trading focuses on short-term price movements, some traders consider the company's financial health for added confidence. Look for companies with solid financials and potential for growth.

While this is in no means an exhaustive list, successful swing trading requires a combination of these factors along with a solid trading strategy and risk management techniques.

Analysing Stocks for Swing Trading Success

Swing trading hinges on identifying stocks with the potential for price movements within the holding time frame. Here's a breakdown of key analytical methods to help you pick winning swing trades:

Technical Analysis

  1. Chart Patterns: Analyse historical price movements to identify recurring patterns. These patterns can offer clues about potential future price direction.

  2. Moving Averages: These smooth out price fluctuations to reveal trends. Look for stocks with a price consistently above a rising Moving Average for potential uptrends, and vice versa for downtrends.

  3. Technical Indicators: Tools like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD) can indicate overbought or oversold conditions, signalling potential entry or exit points.

Liquidity and Volatility

  1. Trading Volume: Ensure the stock has high daily trading volume to enable smooth entry and exit from positions without impacting the price significantly.

  2. Stock Price Volatility: Look for stocks with some inherent price movement, but avoid overly volatile stocks that can be unpredictable.

Trend Analysis

Ideally, target stocks in a clear uptrend (potential for continued price increase) or downtrend (potential for continued price decrease) that aligns with your swing trading timeframe.

As always, this is a combination approach which means that no single factor guarantees success. Backtesting your trading strategy using historical data to evaluate its effectiveness and weaknesses is good practice.

Limitations of Swing Trading

However, swing trading comes with its own set of risks & limitations that swing traders need to manage effectively:

  1. Overnight Risk: Swing trading involves holding positions overnight, potentially exposing the investor to price gaps. This is especially risky if major news breaks after market hours, causing the price to jump significantly when the market reopens the next day.

  2. Limited Profit Potential in Flat Markets: When the market is stagnant and lacks strong trends, swing traders often struggle to find profitable opportunities. Their strategy relies on capturing price movements, and limited movement means limited gains.

  3. Transaction Costs: Swing trading typically involves more frequent buying and selling compared to long-term investing. These frequent trades can erode profits due to recurring transaction fees.

  4. Market Scenarios: Each trading opportunity can present a unique market scenario, requiring different strategies and approaches. This complexity can increase the risk of making mistakes.

  5. Execution Errors: The more complex the strategy, the higher the chance of misreading the market or executing trades incorrectly.

Should You Adopt a Swing Trading Strategy?

Swing trading requires a specific skill set and mindset. It’s not suitable for every investor, and not everyone can succeed at it. Consider the following before adopting a swing trading strategy:

  1. Risk Tolerance: If you have a low risk tolerance or insufficient risk capital, swing trading might not be suitable. The frequent trades and potential for losses require a higher risk tolerance.

  2. Willingness to Learn: Swing trading is a skill that requires time, practice, and experience. It’s crucial to understand not just the technical aspects of reading charts but also the market dynamics influencing price movements.

  3. Start Conservatively: Begin with a conservative allocation of capital to swing trading. This allows you to gauge how the risks and opportunities affect your trading capital without significant exposure.

  4. Keep it Simple: Avoid overly complex strategies, especially when starting. Focus on the basics, learn to use indicators and patterns that make sense to you, and gradually build your expertise.

Conclusion

Swing trading can be a valuable addition to your investment strategy, offering opportunities to capture short-term gains and supplement long-term investments. It offers the potential for high, but requires semi-active management and comes with inherent risks. These risks include frequent trading risks, transaction costs, and market complexity. Ensure you have the risk tolerance, capital, and willingness to learn before diving into swing trading. Keep your strategies simple initially, and refine them as you gain experience. Ultimately, carefully selecting stocks, understanding market movements, and managing your emotions will be your best bet to incorporate swing trading into your arsenal.

Read the following related articles on Algo Trading strategies

  1. What are the different types of Algo Trading?
  2. Best Algo Trading Platforms in India: Our Recommendations
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Frequently Asked Questions

What is the best time frame for swing trading?

Typically between a few days to a few weeks, depending on market conditions and individual stock performance.

How much capital do I need to start swing trading?

Start with an amount you can afford to lose and gradually increase as you gain experience and confidence.

What tools do I need for swing trading?

Essential tools include a reliable brokerage account, charting software, and access to financial news and analysis resources.

Is swing trading better than day trading?

It depends on your risk tolerance. Swing trading requires less time commitment compared to day trading, but still demands market monitoring and news awareness. Day trading offers potentially higher profits but also carries greater risk due to the fast-paced nature.

What are some common swing trading mistakes?

Common mistakes include neglecting to set stop-loss orders, letting emotions dictate trades instead of logic, and trading too frequently. Finally, failing to test your trading strategy with historical data before risking real capital can lead to costly mistakes.

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