So you've carefully decided swing trading is right for you. If I typically had to guess, your next question would be, "what's the best swing trading strategy for me"?
Well, you're in luck because you have a few to choose from. My classic favorite is typically trading the earnings reports. So hold onto your mighty swing and let's get started!
What Is the Best Swing Trading Strategy?
- Here are some of the best swing trading strategies:
- Ride the 9 ema.
- Moving average crossovers.
- Golden Cross & Death Cross.
- Dip buying near support levels.
- Put credit spreads when going long.
- Call credit spreads when going short.
- Naked calls and puts when you are sure of direction.
- Debit spreads when you need to manage risk on directional trades.
- Iron condors in range bound markets.
Here’s a list of catalysts that will move a stock:
- Earnings reports
- Regulatory events
- Economic data points
These events are known ahead of time and occur on a regular basis. Every month or quarter, swing traders keep track of them and play a stock heading into and out of the catalyst.
1. Trading Earnings Reports to Cash In
Learn more about a good swing trading strategy. The top 3 ways in my mind to cash in on earnings reports is to trade based on:
Wall Street Analyst Earnings Predictions
Hitting or missing earnings expectations
2. Wall Street Analysts Earnings Predictions
Richard Davis, Ross MacMillan, Joseph Forest are names you may recognize. They’re on the Wall Street beat and regarded as some of the top analysts out there.
What exactly is it that they do? Well, they “predict” the earnings of a company around the release dates.
To break it down, they estimate the number of sales and profit per share that each company will report. The consensus earnings estimate is the average of analyst predictions for a specific company for the quarterly earnings period (watch us do trading live each day in our trading rooms).
In short, it is these analysis predictions that tend to drive stock prices up or down around the earnings release dates. Because of this traders really focus on the stocks whose release date is approaching.
Traders and investors also pay close attention on how closely the reported earnings match the consensus estimates during earning season.
Here's a link to the earnings calendar which lists when each company will release its quarterly earnings press releases.
A word of caution though, relying solely on company news can put investors at a risk for unintentional insider trading. As a result, this might not be the best swing trading strategy.
3. Expectations: Best Swing Trading Strategy
No one likes to lose and the stock market is one of the most unforgiving spectators out there. If the company "misses" the Wall Street estimates, the share price can change sharply. To be frank, the stock price can tank (know when to use a stock loss vs stop limit order when trading).
If the earnings are better than the estimate, the stock price can move higher. In contrast, if the actual earnings are close to the estimate, share price tends to stay the same.
Hence why many earnings season trading strategies revolve around stocks you think will miss the estimates.
From what I can gather, most of the price action around earnings release occurs during the following trading day. Thus, take some time to do research on your own with one of your favorite stocks. Then see what happens around earnings time.
What Indicator is Best for Swing Trading?
- Which indicator is best for swing trading? Candlestick patterns are the best indicators for swing trading. They show important support and resistance levels. It's important to realize that most indicators are lagging indicators and aren't reliable. Moving average lines help support candlestick patterns and are useful for entries and exits.
1. Word of Caution: Best Swing Trading Strategy
Additionally, it's important to note that businesses often deliberately understate their earnings prior to released date. They do this so that investors will feel good when their stocks come in better than expected.
Seems kinda shady to me and I’m not really sure if this is ethical let alone legal. I’m curious to know what your thoughts are on this?
Feel free to leave a comment in the comment section at the bottom of this post.
2. History: Best Swing Trading Strategy
One earnings trading strategy involves being a detective of sorts. You find stocks whose profits have beaten the estimates for several recent quarters – a stock that moved up on the earnings release.
So, if you think the trend will continue, you buy the shares just before the earnings release. Then, you sell on the news when the price jumps up.
Have you ever been left wondering why a stock tanks after releasing positive earnings? Hum, how the heck does that happen? Isn’t meeting your targets a good thing? This question has left me scratching my head a few times.
So, use your sleuth detective skills, note these stocks and trade them accordingly.
Alternatively, you could find stocks in which the analysts (historically) have done a poor job of estimating the sales and profits. These would be stocks whose profits have beaten the estimates for several recent quarters – a stock that moved up on the earnings release
In order to trade shares near the earnings release dates, you need to find stocks you have a reason to believe will be higher or lower than the estimates. Your reason should be based on history or your own analysis. Read, do your own due diligence.
3. Trades for Big Price Moves
What I really like about the big hitters such as Facebook, Apple and Telsa for example, is their big price moves. Unfortunately though, they’re expensive and many traders feel they don't have the money to play them. But luckily, we have a solution. And that solution is called options.
To being with, options allow you trade against stocks when you predict a big earnings price move but do not know in which direction the share prices will go when earnings are reported. There's lots of great strategies to profit from both a rising and falling share price.
What's more, options are fairly cheap which makes them accessible to most. That's why I love options so much.
I won't get into the nitty gritty of options trading because we have lots of free information and courses on our page.
4. Making Your Own Forecast
Before you go jumping into a stock, you need to determine what direction you think the stock could go upon earnings. The direction you forecast is critical as it will determine your trading strategy. This is one of the most important stock market basics.
It’s important you have strategies for when the price moves to the upside, downside or even sideways. Essentially, it’s having all your bases covered, you’ve got options.
So Ali you may ask, “how the heck do I forecast a direction?” And I would say, " do your due diligence".
5. Finding the Best Swing Trading Strategy
Many swing trading strategies blend technical and fundamental analysis to catch market momentum and provide options when there is a lull.
Bullish Bears can help you do your due diligence and find your strategy. Try us out today, simply click here.