Good swing traders will use fundamental analysis to make sure they aren't dealing with garbage companies that have a history of bad recoveries.
When it comes to swing trading you will get several different answers when it comes to fundamental analysis v.s. technical analysis. The style of swing trading will be much different from one swing trader to another.
Some swing traders will trade a swing no matter what the company is, how healthy it is or what the long term trend shows. If the trader sees a hint of an over-sold to over-bought pattern they will dive in head first and completely rely on their technical analysis skills.
Other swing traders (good ones) will look for specific fundamentals within a company or sector which will increase the odds that a security will recover form an over-sold event. These traders will generally stay away from garbage, no name companies and will stick to securities that have a long history of recoveries after an over-sold event.
Do I use fundamental analysis?
You bet your shorts I do. In my opinion, I feel that it’s idiotic to swing trade any company or security that doesn’t have at least reasonably decent historical fundamentals. Unlike day trading where the trader is out of all positions by the end of the day, we swing traders hold our positions for multiple days which adds a higher level of risk to our trading style.
I look for securities that have a long record of recovering from over-sold to over-bought and also have a history of recovering from economic down swings such as wars, recessions and….pandemics.
If you look at the S&P 500 and the Down Jones Industrial, they always recover. No matter the crisis, war, great depressions or recessions, these stock indexes recover. This is the primary reason why I work with electronically traded funds (ETF) that track the stock market as a whole, they always recover.
Un-Leveraged ETF’s that track a stock index like the S & P 500 will recover with the main index and historical stock data proves this. I can enter a trade throughout several points in an over-sold situation and still know that at some point the ETF will recover. It may tie up my funds for a while in the event of a major crisis (like a pandemic), but it will recover and these big situations don’t happen very often.
ETF recommendations for swing traders.
SPLG and SPXL are the two securities that I swing trade most often. SPLG is a more conservative, un-leveraged ETF which tracks the S&P500 and is slow and steady while SPXL is a 3x bull leveraged ETF which means bigger movements when the S&P 500 moves. Keep in mind that leveraged ETF’s will lose value over time so don’t use them as a long term hold and wait. When it doubt, use the un-leveraged ETF.
Patience.
We’ve all been down that path at some point in our swing trading lives. It’s hard to wait for good swing trades to open and it’s too tempting to get into a position just to fulfill that little monster inside ourselves called greed.
In the end, having patience will help you be a better and more consistent swing trader.