The first key to successful swing trading is picking the right stocks. There are two key variables to consider when choosing the stocks to swing trade: liquidity and volatility.
The best candidates are large-cap stocks, which are among the most actively traded stocks on the major exchanges. In an active market, these stocks will have a high transaction volume. If a stock has poor liquidity or doesn’t have deep action in a broker’s trade book, it may be difficult to sell or may require substantial price discounts to relinquish the shares.
In addition, volatility can be a swing trader’s best friend. Without price movement, there are no opportunities to make a profit. While volatility is often thought of negatively, swing trading relies on volatility to create an opportunity to capitalize on the appreciation of a stock’s price. The stocks that have the highest volatility may be the most ideal for swing trading as there are the most opportunities for profit.