Swing Trading strategy
Think of swing trading as a strategy, utilizing the benefit of a trend in the stock market. Generally, a swing trade lasts longer than a scalp trade ranging into a few days. Usually swing traders are loyal to the trade, staying with it throughout the ups and downs of price fluctuation. This allows the trend to develop its course. Swing trading is less energetic and intense than scalping or other trading styles. In fact, it requires quite a bit of patience, more so than many other various trading styles. Swing traders search for intraday trends or trend reversals so that they can capitalize on price moves. The typical day of a swing trader is greatly stimulated, if they are successful in catching a moment that turns out to be more than an impulsive fluctuation from daily orders.
Swing trades are not only different from scalp trades because of duration, but by the way they develop and how the market perceives them. Most swing trades are born from pattern and trend observations calculated and tracked on daily charts. These tracking procedures may actually take place over a span of several days with 15 to 30 minute intervals. Often stocks in upward trends will continue to go up for three days and then pull back for two days, or up for five days and then down for three. The numbers are the same but reversed for downtrends, whereas down for three days and then up for two.
It’s a good idea to set your initial stop to ¼ below the day’s entry low. Continue to adjust your stop each day as the stock moves up at ¼ below that day’s low. One positive way to determine when to sell on a swing trade is when the stock’s uptrend has made two pullbacks or downtrends and then two very distinct highs. You can manually draw a line at each break point, connecting the dots. Your stop loss, the point at which you will stop the trade to cut your losses and take your wins, should be at ¼ a point under the bottom line. If your stock falls below this line, sell.
The latest software technology has made tracking swing trades more accurate, efficient and easier. Links are possible allowing stocks to be viewed at the simultaneously from more than one perspective. You can compare and cross-reference daily charts to intraday chart patterns, including other chart types.
The ideal swing trader is up-to-date on current trends and very familiar with the public’s sentiments. If you anticipate a bold, continuous trend in the market, you can then search for strong stocks with the likely possibility of breaking out beyond any previous resistance points. Even with all the new technology and interesting perspectives available to us, finding swing trading candidates can still prove to be difficult. You may literally search through hundreds of charts before discovering a few matching possibilities where the best conditions for the best risk-to-reward ratios exists.
The following are a few scenarios to watch out for in swing trading:
· Use S&P 500 Index for Starting Point – Watch the index for trends each day, marking the pivot points, and viewing various charts for several perspectives. Be especially attentive during the last hour of trading each day.
· Target List – Create a target list of possible swing trades with a significant risk-to-reward ratio. Begin your search with the S&P 100 and the NASDAQ 100 indexes. Then cross-reference your choices from various charts and narrow your list even further. Be patient and don’t force patterns on your tired and weary imagination. Real trends will be obvious as you go through your search.
· Chart Trends – Keep consistent charts on recent plays and various trends, noting any gaps, all averages, resistance levels, and critical pivot points. Include daily charts for technical keys that are specific indicators of averages on the move.
· Remember Key Fundamentals – Be on the alert for news with impact in the media that may boost or drop previous trends in the stock market. Stay objective and while you estimate and try to predict the fluctuation effects.
· Exercise Discipline & Patience – Set an entry point and a loss point and stick to it. The idea is to minimize your losses, preserve what you have for tomorrow’s exchange, and to eventually win when the time is right. This is more of a mindset than anything else, but because you are in control of your market actions and choices, and no one has to know your intentions, it’s very easy to change your decisions. Don’t succumb to the temptation to waiver in your preset decisions. It not only puts you on an indecisive track, but undermines your trading confidence.
· Ignore Greed – Even if the stock you are trading has moved in your favor, you haven’t made money until you have officially closed out the trade and completely eliminated further risk of loss. Remember that a small win is better than any loss. Again, exercise discipline in cutting your losses before they grow worse by waiting for an upward trend that might not happen, or for confirmation that it’s all over.
· Scaling – Trace the stock as it moves forward in your favor, similar to trailing succinct pivot point stops. Be proactive in protecting your losses, not reactive when it’s too late. In other words, it’s better to be defensive than to suffer heavy losses.
This requires exiting the trade if you are on the losing side and unsure of which direction the stock may charge.
· Overnight Positions – Since swing trades generally last over the length of several days, often it’s necessary to stake a position overnight. Stocks even change overnight, so it is in your best interest to not close the day on a losing trade or with a particularly high trade with a large percentage share. You need to leave room in either direction for market gaps and unexpected reversal trends.