Swing trading is a style of short-term trading that usually involves holding a position for more than a day but not several months. While day trading is the buying and selling of stocks intraday, swing trading involves holding until the stock is profitable, which can take several days. Here are essential points to know about this trading style.
Analyzing Market Trends
One of the main keys to successful swing trading is an analysis of current market trends. Sometimes market trends, such as several stocks in a sector moving together, last several months. By studying a variety of market factors and looking at charts, a swing trader can make trades based on areas with momentum. Checking 50-day moving averages and stocks that are outperforming these averages are keys to finding breakout stocks.
A common strategy for swing traders is to first establish risk management policies, such as maximum loss before exiting a position. Limiting risk with stop-loss orders is fundamental to growing the value of the portfolio. By limiting losses, the trader can protect capital and enter new trades rather than remain trapped in declining positions.
Using charts based on daily, weekly, and monthly stock prices is known as technical analysis. These charts help define trends in support and resistance levels of stock prices. It’s important for traders to take volume into account for assessing price levels, as high volume often provides confirmation of a price direction. Overtime traders recognize certain recurring stock patterns, such as the cup and handle and head and shoulders patterns.
Holding Overnight Positions
The greatest risk of swing trading is holding an overnight position that falls apart due to company or economic news. The entire market can decline overnight due to a downbeat economic forecast by a prominent Wall Street analyst. Many times the market gaps up or down in the first hour of trading regardless of the news. These extreme changes can cause shocks or profit opportunities, as traders must be careful when using a 50 percent margin.
Swing traders often look at stocks in which companies are issuing earnings reports. Companies that have a reputation for beating Wall Street analyst projections can be rewarding short-term investments. Ultimately the swing trader must develop a system based on rules and then consistently follow those rules, particularly for limiting losses.
About Raging Bull Trading
Raging Bull Trading is a trading program that teaches both new and experienced traders about the art of trading and the stock market. Originally launched in 2010 by professional traders Jeff Bishop and Jason Bond, Raging Bull Trading offers a comprehensive course on mastering stock trading from industry experts. The program includes lessons on stock picks, stock ideas, how to get started in trading, and an overall stock market education.