A Simple Yet Highly Effective Swing Trading Strategy

 

The 3 Stocks to Wealth Strategy taught on our sister site, investtobefree.com, is off to a strong start in 2024 after a very good 2023.  This very simple, focused strategy continues to perform well in our own accounts as well when we use it.

 

In fact, the improvements in the entry/exit strategy introduced last July are easily beating the performance of the prior 2 entry/exit strategies.  And some of the big earnings breakouts featured in the new video series are making massive moves within weeks.

 

In todays blog post, we will go over this simpler yet highly effective swing trading strategy in more detail and the advantages/disadvantages versus other strategies taught here and elsewhere.

 

What Swing Trading Strategy is Best for You?

 

One of the key considerations when selecting a swing trading strategy or developing your own is how much time do you want to spend trading?  Do you work full time?  When are you available to trade during the week?  Does day trading get you excited or does it stress you out?

 

Remember, day trading is entering and exiting a trade the same day and being in cash by the end of the day.  When swing trading you hold a trade for a few days, weeks or even months.  This is covered in more detail in our blog post discussing day trading versus swing trading.

 

One of the big advantages of swing trading is that you can usually work a full time job while executing a good swing trading strategy.  So instead of getting up at 7am every day to get ready for the market day to day trade, you can do your analysis and execute trades later in the day or after you come home from work when swing trading.

 

Day trading requires more preparation, skill and performance.  Whereas swing trading (where you hold trades for multiple days, weeks or months) requires more research, analysis and patience.  And you put in your efforts after the market closes.

 

But even some traders who swing trade sometimes would rather not check their positions each day, spend time trying to make buy/sell decisions, and not be tied to some daily schedule.

 

Lets face it.  A lot comes up every day in life.  You have kids to shuttle off to school/activities, the dog needs to go to the vet, you need to call the lawn company, other daily chores.  The list goes on.

 

So, for some, it may be best just to have a weekly routine where you do your stock screening, research, chart analysis, etc… on one day per week.  Making it a routine you always do is one of the keys to success over the long-term.

 

For some, its hard to be consistent enough when they barely have enough time each day to screen, check watch lists, check for new news and analyze charts for major inflection points each day.

 

However, if you had to do your trading activities on just 1 day per week, it might fit great into your schedule.  So now you can be more consistent more easily because you only need to work on this on 1 day per week.

 

A good ranking strategy is a great swing trading solution for those who want good results while swing trading but are short on time to trade most days.

 

What is a Stock Ranking Strategy?

 

A ranking strategy is simply just rating stocks using key factors that are usually measurable.  You compare each stock to the other stocks available in the market and find the stocks that rank highest in each factor.

 

For instance, you could rank each stock based on their growth, estimates revisions, average volume, float, strength of their price trend, some value measure, return on equity, current ratio, price to book, etc….   The combination of factors are pretty much infinite.

 

You then get the many thousands of stocks available in the market down to the top 3, 5, 10 or whatever number you are looking for.  The more concentrated, the better the results tend to be long-term with more volatility.  Below 3, however, the chances of poor performance increase in our experience and research.  And the volatility can become excessive.

 

After researching other ranking strategies we found that ranking based on certain growth metrics, estimate revisions and the track record of beating those estimates were some of the best factors to use.  We also found more success in stocks that had fewer bearish technical trend characteristics.

 

So we find stocks with rising estimates that maybe had a recent large earnings beat, with strong growth in sales and earnings usually, and were in strong chart patterns without significant bearish technical characteristics.

 

But the initial screens gets it down to a few hundred or less.  Then we go through the charts of each to weed out stocks more likely to be losers using our more than 15 years experience in technical swing trading.  Sometimes you have to go further down on the list of stocks with the best fundamental factors to find good stocks to hold for the following week.

 

We do this screening once per week on Wednesdays.

 

Once we get it down to the top 3, we compare it to the top 3 list from last week.  If a stock(s) is coming off the list of top 3, we would sell that stock(s) the next day (Thursday) and buy the ones coming on the list of top three.

 

We hold these with a stop-loss level in mind, and then repeat the process each week.  Works great in bull markets and is now one of the staples in our own trading portfolios.

 

The Pros/Cons of This Simple Swing Trading Strategy

 

Usually swing trading or day trading involves some sort of A-B-C-D pattern.  Meaning, you have an initial strong move higher or lower, maybe buy at some point in a good consolidation pattern, and then hold on for the 2nd leg higher.

 

Its difficult to forecast when exactly that first move will happen.  Sometimes the stock or market will suddenly gap much higher on good news.

 

Technical swing trading is very effective when done well but you often miss that first move higher.  A ranking strategy keeps money in the market so you can capture that first move.  In fact, our ranking strategy often does much better during that first move.

 

The downside is that the sudden news could be bearish as well.  Technical strategies will often keep more money in cash and will allow you to sidestep that first move down in some cases.  You can then play the secondary move to the downside by shorting or with puts.

 

The biggest advantage of our ranking system, though, is less time is needed to execute the steps in the strategy.  Instead of looking for buy/sell signals each day, you are just in the top 3 stocks with the stop-loss for each.  These tend to be in the 15% to 20% range for each stock.

 

With a service like ours, the time needed each week is a fraction of other swing trading strategies yet with proven performance over the long-term.

 

Another drawback is that most long trading strategies work poorly during a correction or bear market and this one is no different.  However, we now have a better stop-loss strategy similar to what has been used on the S&P 500 and back-tested over 100 years with a big reduction in drawdown while maintaining solid performance.  This new approach actually increased overall performance over the first 11 years of the strategy.

 

How to Get Started Using This Proven Strategy

 

Our sister site, investtobefree.com, has a free video series where you can begin to learn this simple yet effective strategy and start the process of becoming good at it doing all the work yourself.

 

The videos go over the basics of what we look for in the top 3 stocks, bearish technical factors to watch out for, and teaches you more of the basics to get started to learn it yourself.  If you want an expert to do a lot of the work for you each week, we also offer a service for that.

 

We now have dozens of videos in the service to teach you a lot of the tactics we use when swing trading along with some of the biggest earnings breakouts each quarter.  These massive earnings breakouts sometimes lead to a longer-term move for those who want to hold them longer.  Each video brings them to your attention right after the breakout and goes over strategies for each.

 

The biggest moves in market history often start with a big earnings breakout.  Often you have multiple big earnings beats before the stock starts to really take off.  A good example of this was SMCI when we featured it in the daily alert service early last year.

 

These big earnings events can be a clue to finding potential big winners.  The service now delivers many of these each quarter.

 

But the free video series is a real eye-opener for most traders looking for a more focused, effective and simpler trading strategy they can execute on just 1 day per week.

 

 

A More Simple Yet Proven Ranking Strategy – the Free Video Course on Our Sister Site