Most Effective Swing Trading Tips and Strategies 2018

Most Effective Swing Trading Tips and Strategies 2018

Swing trading’s been described as a kind of fundamental trading wherein positions are held for longer than a single day. Most fundamentalists are actually swing traders. That’s because changes in corporate fundamentals generally require several days or even a week to cause sufficient price movement to renders a reasonable profit.

However, this description of swing trading is a simplification. Swing trading actually sits in the middle of the continuum between day trading to trend trading.

A day trader will hold a stock anywhere from a few seconds to a few hours but never more than a day; a trend trader examines the long-term fundamental trends of a stock or index. It may also hold the stock for a few weeks or months.

Swing traders hold a particular stock for a period of time, generally a few days to two or three weeks. It’s between those extremes, and they will trade the stock on the basis of its intra-week or intra-month oscillations between optimism and pessimism.

This article will focus on tips and strategies in swing trading.

Tips on Swing Trading

Swing traders touchscreen

Follow the price action and use technical analysis

These techniques are standard for most all swing traders. Your analysis will help you determine which or ETF to trade.

See Also: Differences Between Fundamental And Technical Analysis

Don’t get caught up in the company

Unlike a lot of long-term investors, swing traders typically don’t worry about the fundamentals of a stock. They don’t spend time getting to know the company, learning what it does, who owns it, its CEO Etc. However, earnings reports will still be important remember that the news affect investor sentiment and can change the price action.

Work with the trends

Swing traders traditionally choose to follow the trends and embrace them. For example, a bull trend bar in a bull market and a bear trend bar in a downward market.

Work against the trends

Most swing traders work with the trends of their stocks, but you could also trade the counter trend. Take a bearish position during an uptrend’s swing high and take a bullish position during a downtrend’s swing low.

Use Japanese candlesticks

Many traders find that candlestick charts are easier to understand and interpret than traditional bar charts. Use the charts to identify where there is buying pressure and selling pressure. Also, use them to identify how intense the pressure is and then apply that information to your investments.

Use a T-Line trading strategy 

Identify the T-Line and use it to make informed trading decisions. If a stock closes above the T-Line, there is a greater probability price will continue to rise.

Likewise in a downtrend, if a stock closes below the T-Line, it will probably continue to fall. This technique works well with most trading plans and investment strategies.

Watch the calendar for trading opportunities 

Indeed, price action is more important than news about companies as it can drive the former. Thus, if you’re long or short a stock, you should know what is on the calendar. It’s good to know if your names are reporting earnings, appearing at conferences, have executives appearing on TV, unveiling new products, or can be impacted by economic news.

Be careful with penny stocks

Many traders, particularly beginners, are attracted to penny stocks and small caps. While these kinds of stocks can give us the volatility we need to make real profits, they offer less liquidity than better-known large-cap stocks.

They may also subject to manipulation and negative one-time events like secondary offerings. However, the fact that they can move so much so fast may make the potential reward worth the risk, particularly for advanced traders.

Be aware of your holding time

You ought to pick stocks that match up with your intended holding time. It’s better that you go through your trading history to see the time frames of your most profitable trades. If you make the most money on a 1-month time frame, focus on stocks that make large moves.

Monitor the market cycle

At the beginning of a bull market, even the lowest-quality stocks can make gigantic moves in very short periods of time. For instance, think of bad earnings, weak sector, low relative strength, low stock prices etc.

However, as the cycle and the initial bottom-fishing is complete, the easy money has been made. Swing traders must also be choosier when picking their spots. In a bear market, embrace short selling and watch closely for “bear market rallies”, which are fast and furious moves that deflate quickly.

Swing Trading Strategies

swing trading tips infographic

Momentum Trading

A stock gains momentum when the stock price starts to move in one direction. It is also when it’s accompanied by a high amount of trading volume. This strategy requires the trader to jump on board soon after the momentum starts and ride the wave for a while.

Careful though, stay too long and momentum could swing in the opposite direction. However, if you jump too soon, you could miss out on potential profit. A happy medium is to set a desired profit and stop there, think of the children.

Fundamental Trading  

The root of fundamental trading is analysis. Fundamentals are the building blocks of a business and their stock price can be related to its activities.

The analysis comes in when a trader examines the expected effect of changes like stock splits, acquisitions and earnings reports. Fundamental trading is similar to regular trading, but taking place in an extremely short time frame.

Channel Trading

Channel trading requires a stock’s identification that’s displaying a strong trend and is trading within a channel. If you’ve planned a channel around a bearish trend on a stock chart, you would consider opening a sell position when the price bounces down off the top line of the channel.

When using channels to swing-trade stocks, it’s important to trade with the trend. For example, a price is in a downtrend and you would only look for sell positions. Unless its price breaks out of the channel, moves higher and indicates a reversal and the beginning of an uptrend.

Scalping

These traders aren’t selling their stocks last minute outside the arena. Instead, they are in it for the small gain. A scalper will make hundreds of trades a day, but only make a small gain each time.

This strategy is effective because of what’s called the bid-ask spread. Essentially, there is a small difference between the highest price one is willing to pay and the lowest price for which a seller is willing to sell. It’s kind of like a middle man strategy. It takes some finesse to be a scalper. However, unlike the ticket scalpers you find trying to make quick, stock market scalpers can make a lot of money.

Fibonacci retracement

The Fibonacci retracement helps traders identify support and resistance levels, and possible reversal levels on stock charts. Stocks often tend to retrace a certain percentage within a trend before reversing again. Also, planning horizontal lines at the classic Fibonacci ratios of 23.6%, 38.2% and 61.8% on a stock chart can reveal potential reversal levels.

Traders often look at the 50% level as well, even though it doesn’t fit the Fibonacci pattern. That’s because stocks tend to reverse after retracing half of the previous move.  

Support and resistance triggers

Support and resistance lines represent the cornerstone of technical analysis. You can also build a successful stock swing trading strategy around them.

A support level indicates a price level or area on the chart below the current market price where buying is strong enough to overcome selling pressure. Consequently, a decline in price is halted and price turns back up again. A stock swing trader would look to enter a buy trade on the bounce off the support line. That would place a stop loss below the support line.

Resistance is the opposite of support. It represents a price level or area above the current market price where selling pressure may overcome buying pressure. This can cause the price to turn back down against an uptrend. In this case a swing trader could enter a sell position on the bounce off the resistance level. Doing so places a stop loss above the resistance line.

A key thing to remember, price breaches a support or resistance level, they switch roles; what was once a support becomes a resistance, and vice versa. That’s what you should do when incorporating support and resistance into your swing trading system.

10-and-20-day SMA

Another of the most popular swing trading strategies involves the use of simple moving averages (SMAs). SMAs smooth out price data by calculating a constantly updating average price. That price can also be taken over a range of specific time periods, or lengths. For example, a 10-day SMA adds up the daily closing prices for the last 10 days and divides by 10 to calculate a new average each day.

Each average pertains to the next to create a smooth line which helps cut out the ‘noise’ on a stock chart. The length used (10 in this case) can be applied to any chart interval, from one minute to weekly. SMAs with short lengths react more quickly to price changes than those with longer timeframes.

MACD Crossover

The MACD crossover provides a simple way to identify opportunities to swing-trade stocks. It’s one of the most popular swing trading indicators used to determine trend direction and reversals.

The MACD consists of two moving averages – the MACD line and signal line. Also, buy and sell signals form when these two lines cross.

If the MACD line crosses above the signal line a bullish trend is indicated. Consider entering a buy trade as well. If the MACD line crosses below the signal line a bearish trend is likely, suggesting a sell trade. A stock swing trader would then wait for the two lines to cross again. That creates a signal for a trade in the opposite direction, before they exit the trade.

Conclusion

Swing trading is actually one of the best trading styles for the beginning trader to get his or her feet wet. But it still offers significant profit potential for intermediate and advanced traders. All of the strategies and tips above can be applied to your trading to help you identify trading opportunities in the markets you’re most interested in.

See Also: What is Position Trading?

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