Best Stocks for Swing Trading in India

What is Swing Trading?

Swing trading is one of the many trading techniques where traders aim to capitalise on the price movements that occur within a larger trend in an asset. The technique involves holding onto positions over multiple days or weeks to profit from the price swings. Here’s a quick example of how swing trading works. 

Assume that a stock is in an upward trend. During the upward trend, there may be minor price swings and fluctuations, which are often triggered by investors booking profits by closing out their positions. Swing traders actively look for these minor reversal points and place trades to capitalise on the price corrections. Traders may either short the stock at or near the point of reversal or buy the stock at or near the point where the stock bounces back up and continues its uptrend. Either way, the traders stand to make gains from the ‘swings’ in price. 

Top Swing Trading Stocks to Invest in

Liquidity and price movements are both crucial for a swing trade to be successful. So, you need to rely on the right indicators to select suitable stocks for swing trading. The relative strength index (RSI) is one of the most commonly used indicators for this strategy. Based on the RSI, the following stocks emerge as the top contenders for swing trading opportunities. 

The above list of swing trading stocks, which is based on the Relative Strength Index (RSI), was compiled on Wednesday, January 24, 2024.

• Poonawalla Fincorp Ltd is a non-banking financial company that offers loans for personal and professional needs, such as personal loans, business loans, professional loans, and other loans. It has a network of branches, a diversified product portfolio, and a customer-friendly application process.
• PNB Housing Finance Ltd is a housing finance company that provides home loans, loans against property, and fixed deposits with attractive interest rates and long tenure. It has a large customer base, a strong distribution network, and robust asset quality.
• Sun Pharmaceutical Industries Ltd is the fourth largest specialty generic pharmaceutical company in the world, with a presence in more than 100 countries. It offers a wide range of products in various therapeutic areas, such as cardiovascular, central nervous system, gastrointestinal, women’s healthcare and more.
• Tube Investments of India Ltd is an engineering and manufacturing company that specialises in bicycles, metal products, and chains. It is based in Chennai and is a part of Murugappa Group. It was incorporated as TI Cycles of India Limited in 1949 as a joint venture company.
• Swan Energy Ltd is an oil, gas, and chemical logistics company and one of India’s top LPG importers and handlers of LPG amongst private players. It operates a network of bulk liquid handling terminals, liquefied petroleum gas terminals, filling plants, pipelines, and LPG gas stations.
• Karur Vysya Bank Ltd is a scheduled commercial bank, headquartered in Karur in Tamil Nadu, India. It was founded in 1916 by M. A. Venkatarama Chettiar and Athi Krishna Chettiar. The bank primarily operates in the treasury, corporate/wholesale banking, and retail banking segments.
• Capri Global Capital Ltd is a diversified non-banking financial company that offers business and term loans to MSMEs and home loans to low-income families in India. It aims to trigger change in the area of financial inclusion by catering to the needs of the underserved and empowering them with equal access to capital.
• Glenmark Life Sciences Ltd is a developer and manufacturer of non-commoditized, active pharmaceutical ingredients (APIs) in chronic therapeutic areas such as cardiovascular disease, central nervous system disease, pain management and diabetes. It also provides contract development and manufacturing services to certain pharmaceutical companies.
• Torrent Pharmaceuticals Ltd is an Indian multinational pharmaceutical company, owned by the Rs 37,000 crore Torrent Group and headquartered in Ahmedabad. It was promoted by U. N. Mehta, initially as Trinity Laboratories Ltd, and was later renamed Torrent Pharmaceuticals Ltd. It manufactures and sells pharmaceutical formulations and active pharmaceutical ingredients in more than 40 countries.
• Aegis Logistics Ltd is a leading integrated oil, gas, and chemical logistics company and one of India’s top LPG importers and handlers of LPG amongst private players. It operates a network of state-of-the-art terminals across major ports of India having a storage capacity of 15,70,000 KL for chemicals and POL and 1,14,000 MT of static capacity for LPG.

Choosing Stocks for Swing Trading: What to Look for?

Swing traders often rely on technical analysis to make trading decisions. They thoroughly analyse technical indicators to not only identify stocks but also potential entry and exit points. Some of the common indicators you can use to determine stocks ideal for swing trading include the following. 

• Relative Strength Index (RSI)

The Relative Strength Index is a technical indicator that measures the momentum and speed of price movements. It is a momentum oscillator that lets you determine if a stock has reached overbought or oversold conditions. You can use the information provided by the indicator to identify potential trend continuations and reversal points. 

The indicator moves on a scale of 0 to 100; a stock with an RSI reading of above 70 is often considered to be overbought, whereas a stock with an RSI reading of less than 30 is considered to be oversold. Overbought stocks have an increased likelihood of reversing or undergoing a price correction. Oversold stocks, meanwhile, have an increased likelihood of rebounding. 

• Moving Averages 

Moving averages are among the most used technical indicators when it comes to identifying existing trends and potential trend reversals. You can use two different kinds of moving averages — the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). However, it may be beneficial to choose the latter because it prioritises recent prices. 

If the moving average for an asset increases, it indicates an uptrend. Conversely, if the moving average decreases, it suggests a downtrend. Swing traders look for crossovers between two moving averages to determine potential reversal points. For instance, if a short-term moving average, such as a 50-day EMA, crosses above the 200-day EMA, a bullish reversal is likely to happen. On the other hand, if the 50-day EMA crosses below the 200-day EMA, a bearish reversal is more likely. 

• Trading Volume

Trading volume provides key insights that help swing traders plan their trades accordingly. High volumes indicate a strong trend, whereas low volumes may suggest a weakening trend. By monitoring the volume and price action, traders can predict the direction in which the asset is likely to move. 

For instance, if an asset is in the consolidation phase, the trading volume will be low. However, when it breaks out of a resistance level or breaks down below a support level, the volume will spike. By keeping a close eye on the trading volume, swing traders can identify stocks with potential price swings on the cards. 

• Ease of Movement (EOM)

Ease of Movement is a technical indicator that considers both price and volume information to determine whether an asset’s price is moving with ease or with difficulty. Swing traders look for divergences between the actual price and EOM of an asset to spot signs of a reversal. For example, if the asset price rises but the EOM falls, it could suggest a potential weakening of the trend and the possibility of a reversal. 

• Stochastic Oscillator

The Stochastic oscillator is a momentum oscillator that moves between a scale of 0 to 100. The area below 20 is considered to be the oversold region, whereas the area above 80 is considered to be the overbought zone. The indicator also has two lines – a %K line and a %D line. 

The %K line indicates the current closing price of an asset relative to the price range. The %D line, also known as the signal line, represents a 3-day moving average of the %K line. If the %K line crosses above the %D line, it indicates a potential bullish move. Conversely, if the %K line crosses below the %D line, it may suggest a potential bearish move. 

The Advantages and Limitations of Swing Trading

If you’re considering adopting the swing trading approach, it is essential to first understand the various advantages and limitations of the strategy. Here’s a quick overview of the various advantages of the trading style. 

Advantages of Swing Trading 

• High-Profit Potential 

The primary objective of swing trading is to capture short-term to medium-term price movements that occur within a larger trend. If the trades are successful, they can result in significant profits. 

• Flexibility  

Unlike other trading techniques like day trading or long-term investing, swing trading is more flexible. Traders can hold onto the positions for a few days to a few weeks, depending on the strategy and target they wish to achieve. It also gives them the freedom to adapt to changing market conditions. 

• Reduced Time Commitment

Swing trading doesn’t require traders to constantly monitor the markets like with day trading. Traders can use the time to analyse stocks instead of focusing on the market movements.

• Doesn’t Rely on Market Direction

Swing traders can generate profits irrespective of how the market is moving. For instance, they can go long if the market is bullish and short the asset if the market is bearish. 

Limitations of Swing Trading 

• Market Risk 

As with any trading strategy, swing trading is also susceptible to market risk. Unexpected and adverse market movements can lead to losses if proper risk management measures aren’t put in place. 

• Overnight Risk 

Since traders tend to hold their positions over multiple days, swing trading opens them up to overnight risk. Overnight risk is the risk of the asset losing its value due to adverse events that occur when the markets are closed. 

• Limited Potential During Sideways Trends 

Opportunities for swing trading may be very limited when the market is range-bound or moving without any clear bullish or bearish trend. And even if the opportunities are present, the profit potential is usually very low.  

Conclusion

Swing trading is a risky trading strategy that’s more suitable for experienced traders. It requires a combination of technical analysis, emotional discipline and strict risk management measures. To succeed, traders need to be on the lookout for changing market conditions and formulate adaptable strategies.