How to Swing Trade

Swing Trading is a great way for traders to take advantage of regular fluctuations in any stock or option which occur as quickly as several days up to a period of 5 weeks, with the great majority of trades in this strategy falling in between.

What's so great about Swing trading is that it's a strategy that doesn't suffer from transaction costs which burden most day traders. Still, swing traders are able to take advantage of the inevitable fluctuations that occur without having to expose oneself to the speculation of a long term trend which may take 3 months or a year (or more) to develop. Rather it sits right in the middle.

Just like in Poker, it can't be underestimated the value that can be found in matching your personal trading style with your strengths and personality. Two Poker players can have completely different styles, one a talker and another a stone-faced watcher, but if you flipped the two around, neither would be as good.

Swing trading appeals to the aggressive spirit who would self-implode waiting for a buy and hold opportunity to materialize but is aware of the pitfalls of its more famous cousin: Day Trading. It favors the brave who are willing to take a position and defend it, but know how and when to gracefully take a loss when it befalls them.

In your swing trading strategies, most important is to choose market-neutral stocks which have good volatility. High volume is also a plus for most traders as volume stocks are generally less prone to 'slippage' and problems of liquidity. Two things that you'll want to avoid as a Swing trader.

At the heart of the strategy is oscillation, channels, support and resistance. Ever notice how the price of fruits go up and down at the grocers; that is the natural price action of the markets. In absence of news, a market would be bound by price action alone, but of course our world is saturated with news. When real news hits real markets the fundamental view shifts, that is when you want to get out. As a swing trader, you are a snarky investor who buys apples (AAPL) when they are cheap and sells them when they are dear, but won't risk hanging out when a dearth or a famine arises.

A time-honored strategy in this regard has been using trend lines and oscillators. Identifying when a stock is trending, and when a stock is just ranging is the ability to turn lead into gold for traders. I recommend that you start your analysis by looking at the 3 month chart.

Make a point of physically drawing trendlines and channels when you are able to identify them. When the price hits the top of your trend channel, then it is considered overbought (a clear sell sign) - and vice versa, when it is at the bottom of your channel it is oversold which is a clear buy sign. When in the case of a prevailing trend such as above, buy in the direction of the trend. The wider the channel the better for your strategy.Once you enter a position, be sure to identify key support and resistance points within your chart and place your stops above and below these. Should the channel be broken, stops are the levees to prevent drawdownitis *.

You've got the ropes, good luck with this strategy!
Have fun and play your heart out!

*Drawdownitis - Stock Losses which are unnecessarily bloated by the failure to put stop losses in place.