Disclosure: Investor’s Business Daily provided ValueWalk a free subscription to SwingTrader for this review.
If you’ve spent any time at all researching swing trading methods, then you may have come across SwingTrader, the premium swing trading product from Investor’s Business Daily. IBD markets SwingTrader as combining technical with fundamental analysis to help investors increase the odds of their success with the trading method. The platform utilizes the CAN SLIM Investing System, so understanding that can give you some insight into how SwingTrader works, especially if you’re trying to compare it to other swing trading platforms.
What is the CAN SLIM Investing System?
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More
The CAN SLIM Investing System is based on a study conducted by William J. O’Neil in the 1950s. He aimed to distinguish the best-performing stocks from the average so that he could increase his chances of success in the trades he made. He examined the various signals that these stocks flash when they’re in the early days of their strong uptrends. He also looked for sell signals which indicate that outperforming stocks are about to hit the brakes.
O’Neil’s study identified seven traits that outperforming stocks display before breaking out, and SwingTrader uses those seven traits to identify stocks that could help swing traders turn a profit. The seven traits are:
- Current quarterly earnings
- Annual earnings growth
- New product, service, management or price high
- Supply and demand
- Leader or laggard
- Institutional sponsorship
- Market direction
Now that I’ve spent a lot of time trying out and reviewing IBD’s premium products, the importance of this CAN SLIM system has become clear to me. Based on what I’ve learned about IBD’s other products, including MarketSmith, Leaderboard and IBD Digital, it seems to me like IBD is taking quite a lot of cues from the CAN SLIM system, even though SwingTrader appears to be the only one of the group to specifically reference the system.
It may very well be that some of the questions I have about how IBD picks the stocks it selects for its various lists may be answered by understanding the CAN SLIM system better. In fact, I rather wish IBD would reference this system more with its other premium products because it explains a lot about how they pick stocks.
How SwingTrader utilizes the CAN SLIM system
To put the CAN SLIM method into practice, IBD looks for stocks that have quarterly earnings increases that are 25% or greater and annual earnings increases of at least 25% for the last three years. IBD also looks for companies with some kind of new, game-changing product or service. They also look for stocks that are favored by the smart money or institutional investors, especially when they’re buying shares in high volumes when there’s a limited supply. Additionally, IBD looks for “leading stocks in leading industry groups,” or “leaders in strong industries that are showing superior earnings growth and sales.” IBD also states that three-fourths of stocks follow the general trend of the market, which is why SwingTrader favors stocks that are moving in step with the broader market.
With a working understanding of these CAN SLIM principles, looking at SwingTrader now makes even more sense than it did before. Swing trading in general focuses on short-term trades that last up to two weeks, so it’s a longer timeframe than day trading. SwingTrader targets trades that last five to 10 days, although some may last longer than that. The goal is always a profit of 10%, with a stop loss of 3% if things don’t work out as expected.
How SwingTrader works
The idea behind swing trading is that a small profit on several strong positions turns out to be a sizable profit, and that principle is certainly put into action in SwingTrader. Sometimes there may only be one stock on the SwingTrader list, while other times there may be several. IBD updates the platform continually, so it’s always a good idea to keep checking back. Setting notifications can also keep you from missing a trade identified by SwingTrader.
Upon logging into SwingTrader, you’ll see the list of stocks that are listed as current trades. Each stock lists the “IBD buy zone,” which basically just means that when the stock gets into that area, it’s a good time to buy it. SwingTrader also tells you where the stop loss is at so that the trade doesn’t get away from you if it doesn’t gain the way it’s expected to. The platform also lists a goal price that works to be a profit of 5% to 10% so that you know when it’s a good time to sell it.
SwingTrader as part of a broader trading strategy
Overall, SwingTrader is very cut and dry. I like how precise it is in listing target prices for buying and selling because this takes a lot of the guesswork out of trading. It seems to work very well for amateur investors who want to trade their own money. It’s definitely for hands-on investors who always want to know how their portfolio is doing.
The trades identified in SwingTrader could go along nicely with a standard portfolio of must-own core stocks that you just own for the long term rather than buying and selling on a regular basis. Because of this, you probably won’t see very many of the most popular stocks like Apple. I can see that Netflix is currently on the list of past trades, but I see that as a sort of testimony that even a Wall Street darling such as Netflix can be a tradable stock rather than a core holding.
Also from IBD