My Swing Trading Strategy

The following is for informational purposes only and is not investment advice.

BTFD Bot is the result of my hundreds of hours of backtesting various swing trading strategies. My test data spans over 900 stocks with data from 2000 to 2025. So that period covers numerous booms, manias and crashes. Although I use a variety of different entry point signals, the basic process I follow is the same:

• Find a high quality dividend stock that is in an oversold state. I use various signals for detecting oversoldness - they are all listed on this page.
• I scan all potential buys in a fundamental analyser. I use FastGraphs for this. I look for:
  • A long term trend of increasing earnings.
  • A long term trend of increasing dividends.
  • No dividend cuts except in exceptional circumstances (e.g. the 2020 lockdowns).
  • Low debt.
  • The stock should not have an obvious bubble formation on the chart.
  • The stock should not look like it is overvalued. Examples: US tech stocks in the AI bubble and EU defence stocks in 2025. These stocks are normally priced because of a 'story' rather than their fundamentals.
  • The stock should not be too cyclical. Particular examples of this are common in sectors including the housebuilders, oil services companies and consumer discretionary stocks.
• Once I buy the stock I put in a LIMIT SELL order for between 5% and 10% above the buy price. This will automatically sell the stock once it reaches this price.
• I hold the stock for one calendar year, and wait for it to sell. While I'm holding the stock, I collect the dividends.
• If it sells for a profit, I buy another oversold stock and repeat the process.
• If the stock price crashes or goes sideways, I do nothing. I don't use stop losses. There's more on this below.
• After a year I adjust the limit sell price to the original purchase price.
• I wait another full year. If the stock still hasn't sold, I will sell at the current price. I will then buy another oversold stock and repeat the process.

Position Sizing

I never invest my entire account's balance in a single stock. Instead I buy a number of different stocks. I also try to keep the portfolio reasonably diverse so I'm not overexposed to one particular market sector. Depending on account size I try to keep a minimum of 20-50 holdings.

I also try to keep each position the same size. It has been my experience that oversized positions tend be weaker performers and can really be a drag on the portfolio's overall performance. With position sizing I would also warn about having favourite stocks and buying proportionally higher amounts of them. With my real money testing some of my favourite stocks have been very poor performers, whereas some of my biggest profits have come from stocks I am much less familiar with.

I also try to stagger my purchasing so that I'm not buying a lot of stocks at a particular time. With buying oversold stocks this can reduce diversification because it's quite common to find stocks in the same industry on sale at the same time. I'm writing this in August 2025, and in the previous month I was buying a lot of US healthcare and insurance stocks.

What and When to Buy?

My real money tests have shown that swing trades can be profitable regardless of whether the overall market is overbought or oversold. However, if the market is deeply oversold then it can be a very attractive time to be buying stocks. For example the market sold off heavily in April 2025. By August 2025 my trades from April had achieved 84% profitability. This contrasted with March reaching 76% profitability and May reaching 64%. The overall CAGR achieved from the profitable trades was also significantly higher than the average.

If there are a lot of oversold stocks to buy then I prioritise the quality stocks. I will always buy the mega cap Dividend Kings first if they become available at an oversold price. Then I will look at the lesser stocks. When I am buying a stock I always ask myself this: will the massive pension fund companies want to hold this stock for their investors on a long term basis?

When to Sell a Stock?

I should make it very clear that we are swing trading here. That is, we buy a stock when it is undervalued then sell once we hit our profit target. We are not long term investors. We do not 'believe' in a stock or in a long term story.

My extensive research with my custom built backtester has consistently shown that a 5% - 10% profit target is most optimal when swing trading dividend stocks. For quality ETFs I would reduce that to 4% - 7.5%. ETFs are generally much less volatile than individual stocks and will generally take much longer to reach a profit target.

Why not seek a profit of 20% or 50% or even 100%? The key concept to understand here is CAGR (compound annual growth rate). The lower the percentage profit target the more likely it is that the stock will reach that target. In my extensive database of swing trade data, a 5% profit target usually results in a win rate of at least 80%. The other important factor is speed. A 5% profit target will be achieved much more quickly than a 20% profit target. So while a 20% profit is a great result, our overall CAGR could be a lot lower than had we simply sold for a quick 5% profit. Put it another way: the more quickly we can sell one stock for a profit, the more quickly we can reuse the capital to buy into another trade. This velocity of trading is absolutely key when it comes to making big profits from swing trading.

More on Setting Limit Sell Orders

I find LIMIT SELL orders to be an extremely valuable tool for swing trading. By automating selling of stocks we have effectively automated 50% of our strategy. That means we can spend much more time focusing on buying stocks.

Not all brokers support limit sell orders. Some may also expire them after a specific number of days. An alternative is to set an alert for this price. It is my experience that using alerts leads to a reduction in performance, because manual trading can miss out on short term price spikes due to news, rumours, takeovers etc. One example of this is when I bought Kohl's at a 52 week low in November 2024. The stock subsequently tanked hard. But 259 days later the price spiked 113% in the mother of all short squeezes and my original limit sell order was triggered. I eventually ended up with an 8% profit plus a further 3% in dividends. I would not have made this profit without a limit sell order, since the price spike was extremely brief.

Another advantage of automating selling is that it means we don't really need to look at our portfolio, and certainly not down to the level of individual stock performance. It has been my personal experience that when I meddle in the selling process I invariably sell stocks too early. This was really evident in the first month of swing trading. I sold a few stocks for 1-3% profit. One subsequently soared 30% due to a takeover attempt!

Stop Losses and Risk Management

My real world testing of stop losses was a disaster. I had few profits and I had to sell many positions at a loss. To find out why, I coded stop losses into my backtester. Much to my surprise, I found that using stop losses with various swing trading strategies actually reduced my backtest performances. In almost no cases was I able to find a strategy where stop losses improved performance. They may work for day trading and trading of high growth stocks, but I could not find any evidence that they could improve overall returns when swing trading quality dividend stocks.

So how else can we reduce risk?

When I first started talking about buying 52 week lows I was told that it's a risky strategy because the stock will probably go to zero!

The first point I want to make is that quality dividend stocks going to zero is a rare event. I have been buying individual stocks since 1999. In all that time I've only ever had two stocks go to zero. One was a property company I bought when my friend subscribed to a stocks tips service. The other was a REIT and I should eventually get something back from that once the company's property assets are liquidated.

I have found the best way to reduce risk is to buy high quality stocks. For that reason the first set of stocks I added to this site were the US Dividend Kings. These strong and stable companies have been around for decades.

The other way to reduce risk is to have strong hands and to not sell during panics or when a stock falls heavily. I have developed the two year holding strategy as detailed above because two years is about the average length of a business cycle. A prime example of this is Facebook (Meta Platforms) crash in 2022. The stock peaked in September 2021 and crashed around 75% by October 2022. Yet if we had followed the two year holding strategy and finally sold in September 2023 our eventual loss would only have been 11%.

Avoiding Bubbles

I have also spent a lot of time researching my backtesting bot's purchase history. The majority of losses are because it buys a stock that is obviously overvalued or is in a bubble. A prime example of this were the many bubbles that formed from 2020 - 2022. What's a bubble look like? Here's Peloton's chart:

With strategies that buy stocks when they appear oversold, bubbles are potentially dangerous. Some strategies can still be profitable once a stock starts coming off a bubble. However the losses can be very steep indeed. Thankfully value stocks are less susceptible to bubbles, but they can still occur. Recent smaller bubbles include stocks in the utilities sector with significant exposure to green energy.

As well as being fairly obvious on stock charts, bubbles are almost always accompanied by a story. I'm writing this in mid-2025 and maybe the biggest bubble this year has been in EU defence stocks. As always there is a story, in this case EU countries significantly increasing their defence budgets. I'm always wary of stories, especially bullish ones. As oversold swing traders, we need to be especially wary of older bubbles that may now be popping.

Dollar Cost Averaging

A new strategy I am investigating is to buy another tranche of a stock when it has fallen 20% or more from the purchase price, and set a sell price when it bounces 10%. Originally I tested using a 20% stop loss. However my backtests and real money tests suggest that selling at this level is often pointless. At 20% a quality stock is usually deeply oversold and is more likely to bounce. When using this technique I would always be careful about giving the portfolio excessive exposure to one particular stock or sector.