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Back to the basics, Swing trading Systems and Indicators

Jason BondJason Bond ·

If you don’t have much time to dedicate to the market, and can only be at your computer for a couple of hours a week, consider swing trading. Swing trading is a short-term strategy that some traders use to potentially profit from price swings in a stock or exchange-traded fund (ETF). Swing trades can last anywhere from a couple of days to a few weeks.

There are three main types of swing trading strategies, or systems, to consider when you’re first starting out: fundamental, technical, and catalyst trading.


With fundamental swing trading, you’re looking at the fundamentals of the stock, and how it may perform based on valuation ratios or company developments. In other words, if you’re a fundamental trader, your belief is that a stock’s price is related to its operating activities. There are a few ratios that some traders like when valuing a stock, including the price-to-earnings ratio, price-to-book ratio and prices-to-sales ratio. These ratios give fundamental traders an idea of whether a stock is overvalued (or undervalued) in relation to its industry. If a stock is undervalued in relation to the industry, some traders may want to get long the stock.

Let’s take a look at an example of a potential fundamental trade with American Airlines Group Inc (NASDAQ: AAL). Here’s a look at some key statistics and valuation ratios for AAL.
Source: Morningstar.

Looking at valuation ratios, AAL has attractive price-to-earnings and price-to-sales in relation to the industry average, and some swing traders may consider a long based on these figures.


On the other hand, some swing traders base their trading system solely off of technicals and technical indicators. Technical analysis looks solely at the price and volume in a stock, searching for a pattern that hints at the direction of future price movements.

One indicator that you might find useful is the simple moving average which, quite simply, is a dynamic average of a stock’s price over a specified time frame. The most common parameters used by traders are the 20-day, 50-day and 200-day moving averages. Generally, when the shorter-term time simple moving average crosses above the longer-term moving average, it indicates a reversal, or bullish or bearish trading. For example, if the 20-day simple moving average crosses above the 50-day simple moving average, that’s considered a sign of bullish trading; if it crosses below, that’s a bearish signal.

Check out the daily chart on Amazon.com Inc (NASDAQ: AMZN)Source: TradingView

If you look at the chart above, the 20-day moving average crossed above the 50-day SMA, and consequently, some technical swing traders may have gotten long the stock here.

Here’s how the stock traded after.Source: TradingView

Now, this is just one indicator, and should help you get started on learning out indicators when you’re first starting out.

Catalyst Trading System

Catalyst swing trading involves trading a stock with either a positive or negative catalyst, and holding the position for a few days. For example, if a company releases quarterly earnings results and beats Wall Street’s consensus estimates — as well as increases its earnings guidance for the full year — some swing traders may look to get long the stock, as it would be considered a bullish catalyst. There is a plethora of catalysts out there, which include, but are not limited to: M&A activity, stock dilution, strategic partnership, FDA approval or positive clinical trial data (for biotech and pharmaceuticals).

The Bottom Line

There are a multitude of indicators and a few swing trading systems that you can employ. When you’re first starting out, find the system that fits you best and makes you most comfortable before putting cold hard cash on the table.

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