Swing trading

What is Swing Trading?

Swing trading differs from day trading in that a trader will hold a given security for longer than one market session. The time frame is typically several days to weeks. Longer trades than that really become trend trades rather than swings, but there is no definitive time frame. 

    Swing trading capitalizes on finding/identifying an underlying trend or reversal early and riding it out to profitability. Traders who utilize this style of trading typically make equal use of technical and fundamental analysis, or at least they should! 

Tips to Get Started:

 Find the Trend

New traders often panic when tasked with identifying a trend, and this is where technical analysis comes in. Check out any of our articles on technical analysis for tools to help identify a trend. Perhaps the simplest way new traders can ensure they are trading with the trend is to make use of some sort of crossover system.A cross up can signal a long buy and a cross down can signal the trend is reversing and to sell (if long). This simple analysis can be performed in multiple time frames to increase the probability of a profitable trade. 

When the trend is identified it is always advisable to trade WITH the trend. It's always harder to swim against the current. Identify the trend in multiple time frames to create a more complete picture of the market. Short term technical analysis without big picture understanding can have a trader exit a trade at the wrong time. The same is true about the long time frames too, they only provide part of the picture. Trends and reversals start small, so be prepared to bounce between charts!

- Use the hourly, daily and weekly charts to identify potential trades.
- Use the shorter time frames to pinpoint entrances and exits. 

Use Multiple Indicators 

CCI (consumer confidence index) if applicable. If not you can still research and discover investor sentiment.

RSI

MACD

Fibonacci retracements 

Stochastics

If you get the buy or sell sign with multiple indicators chances are the market is trying to tell you something! Experiment with different indicators to see what works best for you.  

Understand the Market 

It is imperative, more so for the swing trader than the day trader, to understand how the market is behaving as a whole. Understanding which sectors are bullish and which are tanking can give a trader an edge when searching for potential trades. 

Scan the news! Understand what is happening in markets around the world. If the chinese market is roaring it might be a good idea to investigate chinese tickers. Know the current oil, gold and US dollar prices. All of these can be leveraged to find probable trades or warn you to exit or prepare to exit an existing position. 

Check to see what is trading HEAVILY. Trading volatile and highly liquid securities increases overall profitability. If the day traders keep driving prices in a particular direction the swing trader can use that to their advantage! 

Understand YOUR Stocks

One of the best pieces of time tested advice to swing traders is to follow a core group of stocks. While a swing trader will of course follow the trending stocks, they should have a group of frequently traded stocks to follow.
   

After trading the same tickers a few times it is easy to “get to know” them. Support and resistance levels only exist because of repeated data. If you trade the same tickers often you can use your previous knowledge to your advantage. It is also advisable to track your core group intaday so you get a feel for when they are heavily traded. Everyone knows that one stock that pops at a certain time like clockwork. Get to know all your heavily traded tickers that way. 

Have a Plan

At the very minimum a swing trade should have a target, a stop-loss and an add on point. 

The target depends on the trader and the particular security. The stop also depends on the trader, but for swing trades I generally keep an 8% stop-loss. Some trades I will remove the sl to allow me to add on to my position on dips, but this increases risk as there is no automated stop. Some swing traders limit their loss to 2-3%, these are often large-cap traders following smaller movements. 

It is also advisable to have a plan to re-enter a trade after hitting a target. If a trader sells because they expect a correction during an uptrend  the next logical question is, “will the support hold to make another good trade?” Have a plan in advance! Look at the charts above, there are multiple entry and exit points for swing trades. If a trader has already found a cash cow why look for a different one? 

Build a Routine

The markets open at the same time every day, so there is no reason to be caught off guard. During the pre-market hours it is advisable to scan the overall market and check your positions. 

Once the markets have been scanned the swing trader can narrow down the bullish/bearish sectors and build a watch list. (this is where the core group of tickers comes in!)

Most of the swing trading activity will occur during market hours, 0930-1600. After-hours trading is especially risky due to the decreased volume and large spreads. However, it is a great time to review trades from open hours and begin planning for the next session.

Non-trading activities should be incorporated in a traders routine as well. Common profitability boosters are exercise, sleep and meditation. 

Last Note

Swing trading is a highly profitable and effective method of trading, nobody argues that. However, not everyone is meant to be a swing trader and that is ok! I often hear investors tell me they engage in swing trading because their accounts do not support the 25K PDT limit, not because they enjoy swing trading. Before I had funds to support unlimited day trading I traded with multiple brokers simultaneously so I could trade often. Some brokerages offer cash accounts (non-margin) that offer unlimited day trading with less than 25k deposited. 

© Stock Scalpers LLC. 

Virginia Beach, Virginia