Picking Stocks

Introduction

There are thousands of stocks listed on NSE. No trader can track all of them. One of the biggest secrets of successful swing traders is that they trade a small, fixed list of stocks and know them very well. In this lesson, you will learn how to build your own swing trading stock list.

What Decides Your Stock List?

1. Your Capital

Your trading money limits how many stocks you can hold. With Rs 50,000, you can comfortably hold 2 to 3 positions. With Rs 5,00,000, you may hold 5 to 8. Avoid buying very high-priced stocks if you can only afford 2 or 3 shares, because it makes position sizing difficult.

2. Your Risk Tolerance

Large, established companies with decades of history move slowly and give small swings. Very small companies can swing wildly and are risky. Most beginners should stay in the middle: large-cap and liquid mid-cap stocks.

6 Qualities of a Good Swing Trading Stock

• High liquidity: lakhs of shares traded daily so you can enter and exit without big price gaps. Stocks from Nifty 50, Nifty Next 50 and liquid Nifty Midcap stocks are a good starting point.
• Moderate volatility: moves about 1.5% to 3% on a normal day.
• Clean chart behaviour: respects support, resistance and moving averages.
• Healthy fundamentals: steady revenue and profit growth.
• Manageable debt: debt-to-equity below 1 for most non-financial companies.
• Reasonable valuation: P/E not extremely high compared to its sector.

Simple Fundamental Filter

• Has net profit grown over the last 3 years?
• Is the company free from serious governance issues?
• Is promoter holding stable, not falling sharply?
• Is promoter pledging low?

Stocks to Avoid

• Penny stocks with very low volume. Easy to manipulate and hard to exit.
• Stocks in the F&O ban period, where speculative activity is extreme.
• Stocks announcing quarterly results in the next few days, unless you want to take gap risk.
• Stocks in the news for fraud, defaults or regulatory action.

Example: Building a Watchlist

You have Rs 2,00,000 for swing trading.

• Start with 40 stocks from Nifty 50 and Nifty Next 50.
• Remove stocks that move less than 1% a day on average. 28 remain.
• Remove stocks with falling profits or high debt. 20 remain.
• Pick 3 to 4 stocks each from banking, IT, pharma, auto, FMCG and metals. Final list: 16 stocks.
• Every week, remove stocks with results due in the next 5 days.

Diversify Across Sectors

If you hold three banking stocks at the same time, one negative RBI announcement can hit all three trades. Spread your open positions across different sectors.

Use Market Direction

Before buying any stock, check Nifty. If Nifty is in a strong downtrend, most buy setups fail. In weak markets, reduce position size or trade less.

On GoPocket

Create multiple watchlists on the GoPocket app: one for your core swing trading list, one for stocks near support this week, and one for long-term investments. Review them every weekend.

Frequently Asked Questions

How many stocks should I track?

15 to 30 is ideal for most swing traders. Fewer is better when starting.

Should I trade small-cap stocks?

Only after gaining experience, with smaller position sizes and strict stop-losses.

Key Takeaways

• Trade a small, fixed list of liquid, healthy stocks.
• Diversify across sectors.
• Always check the overall market direction.

Disclaimer: No stock mentioned or implied is a recommendation. Investments in the securities market are subject to market risks.