In the past 3 years I have racked up an 800% gain in my account by swingtrading. I define swingtrading as holding a position from 2 days to several months in order to take advantage of the upside or downside momentum in a stock. Stocks are chosen using technical analysis and basic chart patterns. Entry and exit points are also determined through technical analysis. I'm starting this thread to explain how I have successfully swingtraded in the goal of helping others on here. I also will explain portfolio and risk management techniques which bring the whole strategy together. My aim is to post one educational article a day in order to give you time to digest them and come back to the elitetrader site regularly.
An introductory article on swing trading. Give you an idea of some of the benefits and drawbacks: I can briefly describe swingtrading as taking advantage of brief price swings in stocks lasting anywhere from 1 day to a month and using technical analysis to pinpoint entry and exit points. This is not perilious daytrading or scalp trading. Nor is it buy, hold, and pray. Some people call it momentum investing, because you only hold positions that are making major moves. By rolling your money over rapidly through short term gains you can quickly build up a lot of equity. Think of your equity as inventory in a retail business. The way retail giants such as Wal-Mart make so much money is by turning over the inventory as rapidly as possible. The magic of compounded gains can produce incredible yearly returns. Thankfully the stock market moves in such a way to make rapid turnover profitable. My basic strategy is to jump into a stock when it moves out of consolidation periods and breaks through resistance levels. It then often makes a quick move which I can profit off of. I then sell once the move is over and leave the stock behind as it begins a new phase of consolidation or sideways movement. I then take the money and find another stock and repeat over again. I also play the short side by shorting stocks that fall through support levels. In summary, my goal is to capture the quick moves stocks make in their life span, keep the risk low through money management techniques, and keep my money working in only the most active issues. I am willing to hold a stock for as long as possible as long as it is moving in my direction and making me money. From FOX MarketWire - Investors Get Into the Swing http://www.foxmarketwire.com/money/032300/swing.sml By Robert Bates Instead of furiously buying and selling stocks by the hour like most day traders, Rhonda Reskin opts for a more laid-back approach to reaping Wall Street riches. The Louisville, Ky., mother "swing" trades, or holds onto stocks for a few days or a few weeks, instead of clearing her portfolios at the end of each day. Although this strategy still poses high risks, many investors regard swing trading as a good way to make money without the migraines. "In this market, it can take stocks a week or two to consolidate," Reskin said. "You miss a big portion of their gains if you are day trading." Plus, Reskin added: "It allows me to go pick up my kids at noon." Online brokerages don't keep track of their swing trading customers, but they have noticed more investors experimenting with this tactic. "It's without a doubt getting more popular," said Eric Winchell of kinetictrader.com, an investment site. "Most day traders are drawn into it by the thrill and casino-like atmosphere. But when they learn what really moves stocks, they realize that there are also gains to be made at a slower pace." Insiders say swing trading works well for part-time traders â especially those doing it on the sly at work. While day traders typically have to stay glued to their computers for hours at a time, feverishly watching minute-to-minute changes in Nasdaq Level II quotes, swing trading doesn't require that type of laser focus. "It's the difference between a sprint and a jog," said Richard V. Rueb, executive director of Day Traders USA, an organization for day traders. "I can only day trade for a couple of hours each day, but I can swing trade all day." While day traders gamble on stocks popping or falling by fractions of points, swing traders try to ride "swings" in the market. Its advocates say that by buying fewer stocks and aiming for bigger gains, they pay lower fees and, theoretically, have a better chance of earning larger gains. "With day trading, the only person getting rich is the broker," said Pejman Hamidi, CEO of Egoose.com, which gives tips for swing traders. "Swing traders go for the meat of the move while a day trader just gets scraps." Unlike day traders, swing traders also tend to rely on long-term technical research when making their stock picks. "I spend a couple of hours each night looking over different stocks," explained Michael Swanson, editor of Swingtradingonline.com, which offers trading tips. "A day trader might just jump on the computer and see what's active." Still, swing trading is hardly stress-free. In fact, some believe it's more stressful than day trading because of the stock market's extreme day-to-day volatility. "With day trading you can watch something second-by-second and adjust your strategy instantly," said Bill Lauderback, spokesman for the Electronic Traders Association. Steve Burris of Tradewiser.com, a site for day traders, added that day traders sleep better knowing they're not subject to overnight market catastrophes. "It's not as great a safeguard as going home in cash every night, but it will shelter you from all but the worst downturns," Burris said.
Sharing a bit of my personal experience here.. In Oct. '99 a major gap down in one of my core holdings froze my trading capital for months, caused me to miss the meat of the naz run from 2000+ all the way to 5k+, finally those stuff came back to free my capital, and I have been intraday ever since. Talking about turning invertory over, why not intrady when you turn it even faster than swing. After you establish an intraday mentality, it is extremely hard to do swing, at least on the most active nasdaq stocks, if you observe the hourly/daily charts, you wouldn't possibly hold through several days without giving the stock a 5-point stop, if you play 3-500 shares, that's 1500-2500 bloody American dough ! more than 2 weeks of salary for most working people. I never let a position go against me for more than 1/2 point, a 5-point stop would be insanity. It maybe do-able however, on mid-small cap stocks, which don't have wild swings and subject to minimal overall market influence. And there are plenty of candidates that are generally on uptrend and fit an acceptable risk profile... been there done that, not as much fun as intraday, so kinda gave up. Good luck trading.
dozu888 said "After you establish an intraday mentality, it is extremely hard to do swing, at least on the most active nasdaq stocks, if you observe the hourly/daily charts, you wouldn't possibly hold through several days without giving the stock a 5-point stop, if you play 3-500 shares, that's 1500-2500 bloody American dough ! more than 2 weeks of salary for most working people. I never let a position go against me for more than 1/2 point, a 5-point stop would be insanity." Why is it insanity? If you position size properly, and a stock is highly volitile, a 20 point stop may make sense... And not be all that risky. If you are swing trading (or any type of trading for that matter) you must practice proper position sizing. Lets say a stock is trading at 150 (I know.. Not many do anymore), and you see a reward potential at 180 and risk at 140. This is a trade with an R multiple of 3, definitly worth taking for a swing trader. His account is at $20,000 and he wants to risk 2% which is $400. The point risk is 10, so you divide $400 by 10, which gives you 40. You trade 40 shares, and your risk is $400 while your reward is $1200. Nothing insane about that! As far as overnight risk... It is a problem. But there is also intraday news that breaks. ANY trader is at risk for a huge loss. Thats just the way the game is. I swing trade because I started with a small account size and swing trading looked like a good option, and I became good at it. I now have an account size capable of day-trading, but I perfer to swing bacause I am very good at it. I think day trading is a viable choice, and is not a crap shoot if you aproach it as a business. I think the same thing about swing-trading. I see no reason for swing-traders or even investors to say day-trading is foolish... Nor do I think day-traders should insist that swing-trading is foolish. Either can be done sucessfully... Which is a proven fact.
I agree, completely. I really empathize with newer, undercapitalized traders. The new regulation can seem like a âDeath Blowâ, especially for those who have dedicated a great deal of time to studying daytrading before actively trading. I just hope those affected realize swingtrading is a very profitable alternative. I started trading commodities quite awhile ago. Commissions, dataâ¦. Hell, everything back then was more expensive, but I was ultimately able to prosper. I had a small account that I grew based solely on daily-based trades. Donât get me wrong. I made mistakes at first, but I traded small and I learned what worked for me. So if anyone is feeling dejected out there, then have heart, you can still become a blazing success. In fact, you may find you prefer the slower more reflective pace swingtrading offers.
tradermike how do you scan for a handful of candidates ? YHOO volume works for me at times and it's free. I used bigeasy but now it's $40/months. There are 10,000 stocks and it's overwhelming to pick. Also news and earnings can be some issue, I find.
I agree, completely. I really empathize with newer, undercapitalized traders. The new regulation can seem like a âDeath Blowâ, especially for those who have dedicated a great deal of time to studying daytrading before actively trading. I just hope those affected realize swingtrading is a very profitable alternative. In fact, you may find you prefer the slower more reflective pace swingtrading offers. [/B][/QUOTE] Tymjr, I hope you are right. I've recently started dabbling in swingtrading and I find that I can control my emotions easier. Trading less volatile NYSE stocks has helped in this also. I've been daytrading for over a year now and really like it but sometimes the slippage in those Nasdaq stocks would really be irritating. With the new ruling coming out I may have to switch to swingtrading until I can build my account back up to the limit. Who knows? maybe I'll be better at swingtrading. I'm still a newbie so I'm always open to new ideas. Already I'm finding that it's more relaxing for me personally trading this way. I'm in a cash account too so that makes the down days hard for me to daytrade without being able to short. It's my sincere hope that we will get more swingtraders on this site so that all of us who are being shoved out of daytrading can still find helpful information. Kudos to Tradermike for starting this thread. I hope to hear more from you and the other swingtraders on elitetrader. - Tailspin
mike, not to be negative but i was expecting one educational article a day hehe. still eager to read 'em..
agree with jmcgraw about the position sizing thing... should have thought about this. been intraday for too long and kinda fixed to the mentality of 1-2 positons of 300-1k shares each. actually if play 100 shares each across 10-20 positions, overnight risk becomes quite irrelevent. not much experience here, is it kinda difficult to track so many positions? I would imagine you have to look through a basket of 50-100 stocks at EOD anyway to look for opportunities/set-ups, so I guess move stops/profit targets for a handful of positions is not really much extra work. been looking at forex for swings due to minimal gapping risk. forex retail still at infancy, still haven't found a usable broker yet. either spread too wide or software sux.