When swing trading in the equity market (3 - 7 days), where do you set your profit target for calculating reward-to-risk ratio? When determining my entry action, I set my entry price target at .25 above previous day's resistance and stop-loss at .125 below previous day's support. I would expect to set profit target at strongest level of support within the last 1-2 weeks for a swing trade like this. However, I would like to know if this is the most optimal procedure. Your thoughts are appreciated. Thanks. Needless to say, I am a novice.
Swing trading only works when there is a clear trend. For example now there is NO clear trend. When buying index dips the stock shouldn't plunge about one third of the previous dip. If it did maybe the trend changed this day. When there is a trend, buying dips actually REDUCES risk, contrary to what many people think.
I had a problem with this when I was swing trading as well. I'd set a 1:3 risk/ reward ratio, but often found that even though thats a good ratio, the targets were either too small or too large (because of volatility). This was all done off a daily chart...maybe I should have used a 15 min, but oh well. Now I day trade. I agree with the above poster. Swings are best for trending markets. In fact i had some good gains on CAT and VLO in January, but now... (sigh). cm
I understand the equities market is very volatile right now (hopefully it will stabilize next week). However, assuming the market were stable and trending, how would you set your profit targets for swing trades? Would you use tools such as support/resistance, fibonacci retracements (from past pullbacks from that same stock), cup and handle pattern, double bottom, double top, etc? I would like to day trade as well. However, I won't have time since I have a full-time job and not enough risk capital to make significant gains off fractional price action.
Ok, here is what I do. Say R = Initial Risk, my target would be the lower of 3R or 10%. When price moves pass 1R, I adjust my stop to BE... price passes 2R, stop to 1R... then just let the target hit or get stopped out. If neither of them is hit by the EOD of 5th day, I just close out the trade (It's up to you to choose to stay in or use a shorter/longer time stop). One rule here, I don't take the trade if 2R is bigger than 10% (too big of a risk). I trade based on price and volume and no other TAs at all. Hope this helps, but I'm too a novice and just like you, have a full time job. Please take this with a grain of salt
Thanks for the advice. How are you doing through-out these times of volatility in the equities market?
I became a daytrader Same rules, but the target is the lower of 3R or 5%. Close the position EOD if neither target or stop is hit.
When it comes to technical analysis, a knowledge of S/R levels is vital. Traders have different ways of finding these levels, but the easiest way is to just look at a chart (basic knowledge of candle sticks is helpful). Take a look at this daily chart for FDX ( http://stockcharts.com/h-sc/ui?s=FDX&p=D&yr=0&mn=7&dy=0&id=p90893460114 ) .. You probably notice the "Hammer" candle around Aug 18th ?, where FDX made lows below 100 and closed around 104.. One could say this is a support level. Because stocks don't move in straight lines, they will dip or "Retrace" a portion of their move. This is where fibonacci retracements come in handy. ET seems to have a love hate relationship with fibs, but I like them because: 1) Price seems to react to fib levels with surprising predictability, and 2) It makes it easier for me to make trading decisions when their might not be any clear visual s/r levels just from looking at a chart. Fibonacci is closely tied to Elliot Wave. I dont know anything about "EW theroy"..and most ET'ers despise it (do a search on the topic ). While I use fibonacci retracements, I dont use fib time lines, or fibonacci fans..or any fancy crap. Also check out what are called "pivot points"..i dont use them, but its worth looking at. In my opinion, one of the hardest things about trading is know what direction to take on a trade if your not sure about the current trend. A question I ask myself everyday is "At what point is this trend, NO longer a up trend (or down trend). The worst thing you can do is short a stock because you see it dip, then watch as it bounces and makes new highs. cm