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My definition of swing trading is having an open position in a stock for a period of 2 days to 2 months. As a swing trader you are looking to take advantage of the momentum shifts in stocks that are strongly trending.
Here are, in my view, some of the advantages of swing trading.
Day trading although less risky requires more time in front of a computer screen and can be quite stressful affecting your physical and mental health.
Swing trading requires less time in front of a computer and gives you more time to make decisions. Stock selection can be done at the end of the trading day.
Swing trading sits between two major forces that drive the market. It is too long a time frame for the day traders, scalpers and high frequency traders and too short a time frame for the institutions and mutual fund managers who hold positions for months if not years.
Swing trading does not require a hours of research into the fundamentals of the company. Stock picking is based on analysis of the current price and volume trends. It makes decision making easier as there is no tug of war between fundamental and technical analysis.
Swing trading allows you to take advantage of price momentum in either direction.
Swing trading lets you take small bites out of the market, taking advantage of a stocks momentum while controlling your risk.
Swing trading is not affected by the Pattern day trading rule allowing traders to start with less than $25,000 of capital.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
When you ask any trader why they did something or didn’t do something the answer you get will usually include something related to the phrase “I was afraid”
I sold because I was afraid the price would fall.
I didn’t take my stop because I was afraid the price would turn and go up.
I chased the entry because I was afraid I’d miss the move.
I was afraid I’d be wrong.
I was afraid of what other would think.
There should be no Fear when you are trading. You have to realize that you can not possibly know the outcome of any trade for certain. You should know going into a trade that the outcome will be that you will either make a profit or take a loss. How much profit or how much loss is your decision.
Your trading plan should assist you in making your decision. Before the trade is put on you should have decided what will cause you to exit your trade. You know what you are prepared to risk. If you are afraid of losing that amount then you shouldn’t be in the trade.
Keep asking yourself “WHY” when you review your trades. If the answer starts with “I was afraid”, then you have to work on overcoming your fears. If on the other hand your answer was “because that’s what my plan called for” you are well on your way to becoming a successful trader.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
A trading plan helps you to overcome your fear in several ways.
It focuses on the overall goal rather than each individual trade, it defines the risk you are willing to accept, it gives structure to your trading, and it gives you a step by step methodology to follow for each trade.
Firstly to be able to focus on your overall goal you have to have an overall goal. What is it you hope to accomplish with your trading capital? Once you have you goal defined you have to decide if it is realistic.
Yep realistic: If your goal is to double your capital each year then you have to be able to detail how you will accomplish this. How many trades will this take? How much are you planning to make on each trade? How much will you risk on each trade? What is your winning percentage? Have you factored in slippage and commission? And the big question; do you have a system that will do this? And the even bigger question; do you have the discipline to follow your system.
If your goal is realistic and you have answered all the questions above then you have nothing to fear. You have defined your risk and know that in order to achieve your goal you will expect to have a number of losing trades. They are planned for and expected so there is nothing to fear. You will have trades that almost get to your target and then become losers but this is expected, part of the plan and you move onto the next trade. It becomes one trade out of many that are part of your overall plan.
With a trading plan you only take the trades that are laid out step by step in the plan. There is no emotion involved. Here is the set up, here is the entry and the exits are specifically defined. Nothing to be afraid of. The trade will either make a profit or take a loss; it doesn’t matter as it is only one trade. Wait patiently for your next set-up.
For what it is worth my goal for the year is a 25 % return.
In order to achieve that I will have to risk between 0.5% and 1% of my capital each trade.
I will make about 2.5 trades per week or 125 trades this year.
My plan calls for a 34% win rate 8% breakeven and 58% losers.
I am looking for a R:R of 1:2.5
Although Sept and Oct to date have been a little rough I am on track to achieve this goal.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
First let me say that for the most part I don’t look at fundamentals and I don’t look at the news. I am swing trading. I hold stocks for a few days to a few weeks attempting to take a small bite out of a big move. I don’t need to know why a stock is moving all I need to know is that it is moving.
There is nothing that will tell you what a stock will do in the future that will help you with your trading today. News will cause a stock to move violently in one direction or another but by the time you get it, the stock has already moved. By the time CNBC breaks the news, it is old news, and they will recap why the stock moved but knowing why doesn’t help.
The one thing I do check for is earnings announcements. I rarely hold a swing trade through an earnings announcement.
I start with a universe of stocks that meet my initial requirements.
I want stocks that are priced between $20 and $100.
I want stocks that trade over 500,000 shares per day.
I don’t want Exchange Traded Funds.
This gives me in the neighbourhood of 1000 stocks to choose from.
I then scan these stocks for set-ups.
I am primarily a long side trader. (Canadian tax laws treat short sales and long trades differently).
One set up I scan for is stocks that are in an uptrend and then have pulled back.
I use a couple scans to find stocks in an uptrend.
One is a long convoluted scan that stacks moving averages every 10 days for 90 days.
The other I look for the RSI over 50 for the last 75 days.
Uptrending stocks narrow down the field to 40 to 100; then I scan for stocks that have dropped for 3 days in a row.
Today’s results gave me 4 stock;
I then look for R:R ratio of 1:2.5
NKE & GPRO survived. I’ll watch both tomorrow. Since they both closed near the days low I’m not expecting too much. I’ll enter a small position (about 0.5% of capital) if they trade above today’s high. Stop will be under today’s lows and the initial target is in the area of the last swing high.
Because the market is trending down I’ll trail a stop.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
I don’t trade the open until price has settled down.
NKE this morning is a good example of why.
You have to wonder about efficient order flow. In the 3rd minute after the open in a series of 5 trades price moved as follows.
85.53 1 lot
86.07 1 lot
86.18 1 lot
87.10 26 lots
85.57 1 lot
I assume someone thru in a market order and got raped.
My entry was going to be 85.95. By the time I saw the move I didn’t have time to pick up my mouse, much less key in an order and price was back below my planned entry.
I watched for another minute and the price move below the prior days low and nullified the set-up
GPRO opened below the planned stop and nullified the set-up
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
I’m doing a little bottom fishing. I’m looking for stocks that have reversed direction convincingly. I’m looking for a stock that has been dropping, make a new daily low and suddenly turns heading back up, trading above average volume. The stock closes near the high of the day.
It may be a short covering rally or demand picking up for fundamental reasons. It doesn’t matter why it turned only that there has been a significant change in direction. I monitor these stocks to see if they continue to climb.
Here is the criteria I use to scan for these stocks.