The Easiest Way to Find Swing Trading Stocks | The Long & The Short Ep. 43

Welcome to this part two episode on swing trading. In part one, we covered what swing trading actually is, where the word comes from, and seven different ways of identifying a swing. Today, we are getting into the real meat of the strategy, stock selection. If you want to trade discretionarily, this episode is where the rubber meets the road. And to make your life a whole lot easier, I'm going to share a custom trading view script that will help you select stocks. Now, talking about the word discretionary, which I've used a few times already in the series, and if you haven't seen it, I would point you to episode 3 of this show, discretionary versus systematic trading. Which is better for you? Where I went into the trade-offs between the two approaches in a lot more depth. The short version for anyone who hasn't watched is this. Discretionary trading leans on judgment, pattern recognition, and experience built over time, while systematic trading leans on fixed testable rules. Neither is inherently superior. They suit different temperaments and different amounts of time you are willing to put in. Swing trading happens to be one of those areas where both approaches genuinely work, which is why we split it into two parts. Part two, that is this one, is about the discretionary side of things. how you actually screen for candidates using your eyes, your judgment, and the patterns we've already talked about. Part three, we will get as systematic as we can with position sizing and risk and reward built in. I'm your host, Sepra, and let's dive in. Before I start, here's a quick disclaimer. The examples and ideas shared in this episode are strictly for educational and illustrative purposes only. Nothing discussed here should be construed as a recommendation, investment advice or a solicitation to trade. Trading in stocks and derivatives involves significant risk and can result in complete loss of capital. The examples and data presented are meant to explain market behavior, not to suggest that similar outcomes will occur in the future. And before we get into how to actually screen for candidates, let's be clear about what discretionary means here because it's easy to mistake it for no rules at all. Personally, I've never seen a successful discretionary trader who doesn't have rules around why they are entering a stock at what point they would exit and if they have a target at what point they would exit based on that target. So to underline the point discretionary doesn't mean you do whatever you feel like. It means there is a set of rules, but the application of those rules, the actual selection is where the discretion comes in. There's another aspect worth flagging. Discretionary trading can be hard on you psychologically because there's no one else to blame. Alan Farley, who wrote The Master Swing Trader, puts it directly. A valid discretionary approach requires a heavy dose of personal responsibility because there's no one to blame but for yourself if you are stuck in a hole at the end of the day. So that's the context I want you to keep in mind every time I use the word discretionary in this episode. That's how I am approaching it. One last point before we get into instrument and stock selection. When it comes to equities, it's really hard to take swing trades on the short side and there are two reasons for that. First, there are many stocks, but only a handful have derivatives attached to them. Say you define a liquidity threshold for stocks you would consider tradable, you might land on something like 500 stocks. But of those, we only have close to 200 stocks in the FNO segment. And if you narrow that down again to genuine liquid FNO stocks, you are looking maybe at max 50 to 70 stocks. So if you actually want to take a swing trade on the short side, you are practically limited to that pool of 50, a very small universe to choose from and that's a real problem. The second reason is that equities in general have an upward drift built into the broader market. You never know when flows come in and push an index or a stock higher. And because of that, markets spend far more time going up than they do going down. Even purely in terms of opportunity, you are better off focusing on the long side rather than the short side. I want to clear about one more thing. This positive drift is more of an equities phenomena. The same doesn't necessarily hold for commodities, which is why when we looking for opportunities there, we'll consider both the short and the long side. So those are the points I wanted to make before we move into stock selection. Everything we cover from here on will be on the long side for equities and on both sides for commodities. And now you know why. With our foundation sorted, let's jump straight into stock selection for swing trading. In this episode, I'm focusing on the Wagner and Pedicelli's method that is finding the strongest stock inside the strongest sector. Once you identify where the money is flowing as a sector or industry, pinpointing winning stock becomes far more easier. There are two highly effective ways to track down these leading sectors or industries. The first option is tracking the standard NSE National Stock Exchange sectoral indexes. The NSE publishes 34 indexes, but only 17 are actively followed. You can stick to those heavily tracked benchmarks or you can build your own custom equal weight trackers for the remaining 17 hidden sectors directly inside Trading View. Something which I would talk about later. The second option is using granular trackers like the Tajjori indexes. The Jori tracks roughly 80 niche subsectors exposing massive momentum in pockets most traders miss. Because these TJI capture small cap and micro cap movements, your playground expands dramatically. But you can only trade these setups as unleveraged cash positions as most of these stocks are usually outside the FNO segment. At this point, I want to talk about one major issue with the standard NSE sector indexes. And the problem is they are market cap weighted. One or two heavyweight outliers can skew the entire index's performance. So for swing trading, you need a true equal weighted view to ensure the majority of the stocks in the basket are participating in a rally. [music] and building your own equivated trackers inside of Trading View seems to be the only long-term solution. To get you started, I have a copy and paste spine script snippet that plots an equal weight basket and identifies the strongest stocks within it. Using that, let's look at a live example to see how to pinpoint a winning swing setup. We will look at two examples, one from the NSE sector indexes and one from Tajor Index. Now, these indicators by themselves will give you an entry point and a method to trail which serves as a stop-loss as well. You can use moving averages or super trend to trail. I'm a big proponent of trailing rather than exiting based on targets because it's very hard to predict when the trend stops. It's quite possible that some of your best trades would continue for 6 months. Why would you want to exit them and reallocate capital to something else? The best way to deal with this problem is by defining a trailing method which could help you capture as much as possible of a trend. Now the first example that I would take is how to use the nse sector indexes and create a equated index out of them. Step one you would have to go to niftyindexes.com and in niftyindexes if you click on the indexes tab [music] you would get sectoral indexes. So you click on sectoral indexes. Here you see the list of 34 indexes. For today's exercise I'm going to use Nifty realy as one of the indexes. So once you click on Nifty realy you would get this here in download section you would get index constituents methodology fact sheet all of it. We need the constituent list. So we download the constituent list and it would look something like this. So there are around uh 10 stocks in this constituent and we need these names because we would be using them to populate the trading view indicator. Now we jump to trading view and what you need to do is you need to make sure that you have the equivate NAV indicator on your trading view and what would happen is once you go to settings and inputs you would find a few things. Let me explain NAV label. So this is just a label I've created where I've written India realy basket. This is just a label. You can write anything so that you can identify which index you're creating. And then there's a size of the label. You also have returns position. I have chosen top right. And you also have stock versus NAV table. Yes, we need that. And that is on the bottom right. So we've selected these. Now calculate NAV from. So this is the start date from which the NAV would be calculated. I have chosen this as Jan 1 2026. You can choose any date that um serves your purpose. The number of active stocks which means what you would need to do is you would have to go to this file and see the number of stocks which are there. So I see there are around 10 stocks. So I would go ahead and input 10 stocks. After you input those 10 stocks, you would have to take this symbol which you see over here and input them up over here. So for example, if you are doing um you know the first one here says ARL. So I what I would do is I would select stocks here and put ARL. You will have to do that for all the stocks which are there in the index. As you can see, we've got 10 stocks over here and the number of active stocks. The number is also 10. So that's pretty much And after that, if you come down, if you want, you could have couple of uh EMAs to track um the index performance. So we have 20, 50 and 200 over here. I click on okay. And once you click on okay, you get a line chart like this. And you would also see two moving averages. So as you can see the sector is um there's been a crossover around a few days back. So the sector is uptrending. So that's a good sign. And then we also have the period return for the given sector in terms of NAV. So 1 day return, one week return, one month return and 3 month return and so on. One of the things which you could use to select a particular sector ease its performance across multiple periods. For instance, if it has been trending up for 3 months, 6 months, 1 week period positively that is then the greater odds that such a trend or momentum would continue. So um looks good at least from a 3-month perspective not so much from a six-month perspective. So that is one. And then on the right side as you can see we have the stocks. Okay, the NAB baseline is calculated from the date which we updated over here. So this that is 1st of Jan. So from 1st of Jan the baseline is up only 1.66%. But these four stocks have done way better on an average than others. So which means the skew is is towards these stocks. So it's not a balanced u you know sectoral trend that we are seeing here. It's more of a phenomena across a few stocks. Nevertheless, what you could now do is select any of these stocks. So, let's say uh we look at a reality. So, what you could do is uh we just pick up a reality over here. And you can now apply any trend indicator that you want to see. So, one of the trend indicators, one of my favorite is super trend which helps us. And you could use the uh default setting of 103. Over here we have applied it to chart and the chart is on a daily time frame. So you can apply it and then you can see whether the stock is in an uptrend or not and that helps you get an entry into the stock. So you would have to scan these across you know on a daily or a weekly basis to figure out which is a stock and which is a sector where you would have to get in. But this is you know definitely in a positive territory this one. Other than that, you may also want to use instead of a price a normal price chart like this, you can also use what is known as a non a price only chart where you know instead of candlesticks you can use something like a Reno. So here is Reno and what Reno tells us is it gives a far clearer sense of how the price moves because it does not include time as a factor. It only shows us what the price is doing. So if the price is not moved for a given period then you know the it won't get updated in the chart. To know more about Reno, I will share a link which would explain how Renko works because it's a bit can get a bit complex if you're not used to it. But in terms of showing you whether breakouts are happening or not, it's a very very clear indicator and it kind of crunches the time as you can see. So over here as you see uh somewhere in December 24 was the kind of the high and then we are still some distance away from it. This is a good zone uh you know and that's what a swing trader would look for if the breakout happens from this all-time high. So that's in terms of looking at charts from two different perspectives both as a candlestick or a price only chart where time is excluded which is a reno. So when you are looking at a sector, you may not obviously want to stick with one stock in it. So you may want to look at it across stocks where you know the theme is playing out. So it could be um the other one as I said the Phoenix. So it's Phoenix Mills over here. The structure looks very similar. Okay. But in terms of price, it looks like it is um you know at a high. Let's see if you want to see whether it is breaking an all-time high. becomes easier as I told you if you do it with Reno. Now we have a Reno chart again over here and as you can see this is where the all-time high was again sometime in July 24 and this particular stock has broken that all-time high. So compared to uh Oroy reality we have Phoenix which is done which is breaking out of its all-time high. There could be a story brewing here. I'm not really recommending the stock but what I'm trying to say is this is how you would pick your swing u trades and then use a super trend to trail it and u you know continue to hold on to the trade till the trend continues. So this was how to do it from NSC. The next example that we would take is creating an equivated index on trading view by using the Tajjori indexes. So once you log into Tajjori Finance you would get to this dashboard and once you are in the dashboard if you kind of scroll down you would see these indexes. So if you click on this so once you get to Tajjori you would see these indexes TJIS over here. We will click on equiate and that would turn this whole selection into equate and then we filter them based on one week. So once we filter them based on one week we we should also probably look at its performance across higher time frames which is 1 month 3 month and so on. So if I do that the top uh what I see over here is micr finance. So let's do so if you click on micr finance you get all the stocks which are there in micr finance there around seven of them. Okay, what we would do now is use um this list of stocks which uh belong to the TJI micro finance and create our own equatee index out of it. Again the same um you know approach works where we have these seven stocks. So we'll start with the first one just to simplify the whole process. What I do is you know when there are let's say we have only seven stocks. So anything beyond that I make sure that it's all nifty50 index on it and this number is very important because those are the numbers those are the stocks which would be considered for calculating the NAV. So we have seven stocks over here and the number should match to seven and make sure all other fields which are close to 40 of them are updated with some stock like Nifty50 or whatever that you want because if you leave them blank then you would see an error. So we have all the seven stocks. Okay. So we have updated it. So now we have the TJI micro finance basket which we have created. Uh we created an equivate index of that. As you can see we have all the stocks over here. The baseline is up 17.6% since 1st of Jan. So which is quite a positive. The contributing stocks for the same period are these three. So it's again not really something which is evenly spread out. And uh you know you also have the details over here for the whole index in terms of how it has performed over past 6 months. So what you see over here the versus NAV column just FYI it tells you compared to the baseline how much better is a given stock doing in terms of percentage points it tells you how much better it is doing compared to baseline. So that's what is this. So let's again look at the top stocks over here. It says something like fusion. So let's do that again. We're looking at it from the same indicator which is super trend. So there is a trend which has started around um you know 25th or 26th 29th of um June and then that's what is happening here. Okay. So let's look at from an all-time high perspective where we are. So as you can see from an all-time high perspective it is nowhere close to uh all-time high. So what we would do is we would again look at it from a Renco perspective and it becomes easy for us to track the all-time high. Look at this. Look at this. Okay. So the stock was all-time high was some close to 650 plus and we are still around 200 250 right now and this all-time high happened sometime in 2023. So, so what do you see over here? This is what I was trying to describe when I said with Renco your ability to look at you know the big picture becomes easier and that is why the price only charts are you know have their own advantages as it has been described even in part one of the episode we spoke about the value of these um you know visualizations. So that's what it is. So yeah you make a choice based on whether this makes sense or not. In short, today we defined discretionary trading and established that it still requires strict rules. We also covered how to use custom index trackers on trading view and the value of using equal weighted indexes to judge true sector strength. Beyond finding the right sector and the right stock, one of the most vital lessons I have learned is the necessity of diversifying. While concentration has its advantages and it looks good when you're right, but it's diversification that keeps you alive in the long run. And that brings us to our next pillar, which I will break down in the upcoming episode. Position sizing and risk management. Managing your trade size or position sizing is arguably far more important for us as traders and our longevity in trading than mere stock selection. Finding stocks to trade is actually the easy part because you can easily build rules around it. Managing our risk is what keeps us in the game in the long run. So yes, that brings me to the end of this episode and I hope you found it useful. If you have any questions, feel free to ask them in the comments and I will try my best to answer them. Thank you. Until then, take care and trade safe. I'll be back soon with the next one.