Folks, I’m convinced that the reason most people lose in the stock market is because they use a trend following strategy in a trading market. Swing trading strategies are important to learn because in a trading market (also called a stock pickers market), you can transition from a trend following strategy into one of several swing trading strategies.

Swing Trading Indicators

Don’t get me wrong. There is a time for everything. Trend trading strategies work when the ADX line is low and starting to rise higher on the S&P 500. Buy high and sell higher is a viable strategy. The problem, however, is in not transitioning into swing trading strategies when the ADX line is high and starting to come down.

We cycle continuously back and forth between a trending market (range expansion), and a trading market (range contraction). Knowing this is going to help you improve your trading. Check out the chart of the S&P 500 below.

swing trading strategies

Notice on the left side of the chart in the blue shaded area, the ADX line was rising thus the market was trending. Trend trading strategies like buy and hold work very well. It is common for the market to trend during the best 6 months of the year for the stock market (November through December).

In June, as we move into the right side of the chart above and the green shaded area, the ADX line started falling. A falling ADX line means that the market is a trading market. This is also called a stock pickers market. Swing trading strategies have a tendency to do better in a trading market.

Swing Trading Strategies That Work

One of my favorite swing trading strategies is to find oversold stocks that have high short interest. The metric we are looking for is called short interest days to cover. Days to cover does not mean that short sellers have to cover in whatever days the metric shows. All that days to cover means is if all short sellers wanted to exit a stock at the same time, it would take X number of days for them to do so based upon the average daily volume of that stock.

First you want to screen for oversold stocks. Here is the best free stock screener on the web that automatically screens for oversold stocks. Go here and sign up for a free account. This is a free account on the website called Finviz which stands for Financial Visualization. Spend a couple of minutes signing up for a free account then come back and continue this lesson.

Now that you have signed up for a free account and are logged in, click on Screener at the top of the window:


Then click the Signal drop down box and select “Oversold” as the pattern:


Now click on TA which is underneath the filters section. TA stands for technical analysis. Up will come the TA listings of all oversold stocks. Note that “Short Float” metric. The higher the “Short Float” number is, the greater the number of short sellers in that stock. This metric is the number of short sellers as a percentage of float:


Pick a few stocks with a very high “Short Float” metric. Now go over to the Nasdaq’s website to look up the “days to cover” metric. Click here to go to the Nasdaq short interest webpage. You can enter up to 25 ticker symbols in the box on this page.

Click the Go Now button and up will come the days to cover metric for that stock.


The information is free so it’s about 2 weeks old but it still can be useful in your trading. Any stock with a short interest days to cover metric of 3 or greater, is a short squeeze candidate. The higher the days to cover metric, the better.

The reason this is one of the best swing trading strategies is because it has the added dimension of short covering to push the stock higher. Think about it. For a short seller to close out their position, they have to buy the stock back. In other words, by knowing the short interest in a stock, you also know what the future buy side demand is going to be if the company doesn’t end up filing for bankruptcy.

This swing trading method is not complete without you establishing the catalyst. So after you search for oversold stocks, then check the short interest days to cover metric, you need to search the news for that stock to see if there is a catalyst that can cause short sellers to cover their shorts and buyers to come into the stock. Establishing the catalyst is the most time consuming aspect of any swing trading strategies.

Swing Trading Tactics

The ideal stock will be a small cap stock with a beta greater than 1. It will have a high short interest as a percentage of float. Stocks with a short float of 20% or greater are good. The stock will have a short interest days to cover metric greater than 3 but preferably 10 or greater. Finally, when you check the press releases and news for that stock, it will have a catalyst that can lift the stock higher such as an earnings surprise to the upside. New business or sales is another catalyst. If you are having trouble with understanding how a catalyst impacts swing trading strategies that involve short covering like this one, then I have a great exercise for you.

On Finviz go back to the home page by clicking here. In the middle of the page you will see the top gaining stocks for the day:


Go down this list and click on the top gaining stocks for the day then go to their press releases and news stories at the bottom of the page and see if you can determine the catalyst of each top gaining stock for the day. This is a great way to get good at spotting catalysts that can cause short sellers to cover their positions.

Frequently Asked Questions about Swing Trading Strategies For Finding Oversold Stocks

What is the best swing trading system?

The best swing trading system is buying stocks that are oversold, holding 1 to 4 days, and selling for a 5% to 10% profit.

What is intraday swing trading?

Intraday swing trading combines elements of day trading with swing trading.

Intraday swing trading uses an intraday price chart to better time a swing trade.

The idea is that the same rules that apply to swing trading daily charts can be applied to intraday charts to better time your entry.

SwingTradingBootCamp posted the video below called Intraday Swing Trading Strategies – Price Action and Volume.

Swing Trading Strategies Vs Trend Trading Strategies

I’ve lost so much money at trend following strategies that I’m pretty much done using them. For me, the real money is in swing trading strategies where I’m only buying stocks that are oversold, have a history of bouncing off a support level, have high short interest, and have a great catalyst.

The trick to being successful at swing trading is finding stocks that have a history of bouncing off of a previous support and that have a beta of 1 or greater, with a market cap of 2 billion or less.