Stock prices fluctuate every day. Don't you wish that we can capture most of the short-term ups and downs for profit?
We show you what is swing trading and how to use options strategies to maximise returns on capital in times of volatility.
Contents
What Is Swing Trading?
Swing trading is a medium-term trading strategy that captures profits from price fluctuations. A great swing trader usually uses technical analysis to predict price trends a few weeks in the future.
Looking at the price chart of HSY, the stock price was bullish until it hit a resistance of around $275. Then it started falling from the middle of May until the beginning of June.
A swing trader could short HSY stocks since the beginning of May and exit the trade by June for a 7% profit.
Why Swing Trade?
The advantages of swing trading include:
- It usually takes less time to find a tradeable underlying through technical analysis than through fundamental analysis.
- Unlike value investing, a swing trading strategy is only active for a few weeks, so you can be more flexible in your capital utilisation.
- There is less trading activity than day trading, resulting in fewer trading fees.
Downsides of Swing Trading
There are also a few disadvantages to look out for:
- There are hundreds of technical indicators available, and may not be suitable for every situation, so we still recommend a combination of fundamental analysis to increase the win rate.
- News announcements over the weekend may change the outlook of the price trend, leading to unexpected losses.
How Long Should You Hold a Swing Trade?
The goal of swing trading is to capture profits across most of a price move, which usually lasts from a few weeks to a month or two.
Advantages of Swing Trading With Options
We all know that options trading has higher leverage than stocks, but do you know that an options seller can use the decay of time value to increase swing trading win rates?
Options contracts have expiration dates, so an options trade is only profitable if the stock price moves as expected before expiration.
An options seller receives a premium when selling to open, so theta decay works in the seller's favour. Theta decay is most predictable around 30-60 days to expiration, perfect for swing trading.
Our official account entered a bearish Call Spread on 5/17 for $387 buying power and buy to close the trade 21 days later on 6/7. The trade earned $553 in profit, for a 143% return on capital.
Compared to a short stock trade entered across the same period, the stock trade would only earn $14.20, a 5.3% return.
| Strategy | Buying power | Profit | Return on capital |
|---|---|---|---|
| Bear Call Spread | $387 | $533 | 143% |
| Short stock | $267.50 | $14.20 | 5.3% |
Best Stocks for Bullish Swing Trade
The Bull Put Spread screener uses technical analysis to find stocks with the most recent bullish indicators:
- When Long Days = 1, it means a bullish indicator just turned on yesterday, so we can get in on the price movement as early as possible.
- The Trend column indicates which stock is currently oversold.
It helps us find bottomed-out stocks ready to go bullish.
NTRS is currently both Long Days = 1 and oversold. After 6 months of bearish trends, NTRS shows signs of bottom out and is ready to go up.
An ATM Bull Put Spread that expires next month has a maximum return on capital of 58%, and it is the best bullish swing trade opportunity right now.
Best Stocks for Bearish Swing Trade
The Bear Call Spread screener uses technical analysis to find stocks with the most recent bearish indicators:
- When Short Days = 1, it means a bearish indicator just turned on yesterday, so we can get in on the price movement as early as possible.
- The Trend column indicates which stock is currently overbought, it helps us find topped-out stocks ready for a correction.
- We also need to avoid stocks with upcoming ex-dividend dates, so we don't get buyers driving up the prices for dividends.
CELH is currently both Short Days = 1 and overbought. We see CELH has topped out and met some resistance in the past month. It seems ready for a downward correction, and there is no ex-dividend date in sight.
An ATM Bear Call Spread that expires next month has a maximum return on capital of 117%, and it is the best bearish swing trade opportunity right now.
Now you know how to find high-probability swing trade underlying with stock screeners, you can swing trade with options to maximise your profits.
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This does look like a good way to time the market.
Thank you
Thank you for the great tips on swing trading.
Love the stock pickers to anticipate a bullish trend.
Good post thanks