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I like to research the strongest stocks when I look for swing trade ideas. I sift through the top 1 or 2% in terms of relative strength in the current market and look for two basic types of setups: breakouts, which I can buy intraday and anticipation setups, which I can buy the next trading day if they trigger.
- Breakout – a 2-3% move that might be the beginning of another leg higher that could continue several days to several weeks and deliver 5% to 20% gain. There were quite a few signals on Friday. A few examples: EVBG, AMD, FIVN,
EXAS , STAA, etc. - Anticipation – tight range contraction that can potentially lead to a breakout. You buy on a new 3-day high and either sell on strength or trail your profits. The nicest feature of anticipation setups is that all research can be done after the market close and the entries can be automated via conditional orders (buy or sell stop limit orders), so you don’t need to sit in front of your screen all day. Today’s anticipation setups are often tomorrow’s breakout setups. Some current examples: WWE, RARX,etc.
The most important thing is to know when to play those setups. They don’t work all the time and in every market environment. In fact, the same high relative strength stocks can offer great shorting opportunities during corrective markets when most breakouts fail and lead to a quick move lower.
Check out my latest book: Swing Trading with Options – How to trade big trends for big returns.
