Day Trading Online Home Page  
Home

What is Swing Trading?

Swing Trading allows you to take advantage of short price swings in strongly trending stocks. By riding the momentum in the direction of the trend, it is possible to make money with less effort than in Day Trading. However, a different mindset is required, and profit potentials are generally smaller, not to mention that any day trading tool you use may be useless in a longer timescale. Swing trading involves holding stocks for a few days or perhaps a couple of weeks, attempting to capture the general upward or downward trends. Some people call it momentum trading, because you only hold positions that are making major moves.

How does Swing Trading work?

Basically, Swing Trading involves buying or selling a strongly trending stock (or other instrument) after a period of consolidation or correction is complete. Strongly trending instruments often make a quick move after completing a correction. The goal of a trader who is swing trading is to make money by capturing the quick moves that instruments are wont to make, and at the same time controlling their risk by proper money management techniques. Sound familiar? That's right, swing trading is Day Trading but on a slightly longer scale.

What are the advantages of Swing Trading?

Swing Trading attempts to combine the best of two worlds - the slow pace of investing and the rapid potential gains of day trading. Swing Trading works well for part-time traders, for example people trading from their workplace. While day traders typically have to concentrate on the market, looking for the next 'in' or 'out', those who are swing trading generally use end of day strategies.Swing Trading players are looking for bigger gains than day traders, and are therefore required to have larger stops. Obviously, if you are Swing Trading you will tend to make fewer trades than a Day Trader, and this means you will also tend to have lower brokerage costs.
 
Disadvantages of Swing Trading include the necessity to watch your position spend potentially long periods of time underwater, and the increased margin requirements that entails.

How do I go about Swing Trading?

Typically, while Swing Trading you will attempt to spot strong trends. An uptrend is a series of higher highs and higher lows i.e. a series of successive rallies that extend above the previous high point, usually interrupted by falls that end above the low point of the preceding sell-off.

A swing trading downtrend of course, is the reverse of this. Having identified the trend, Swing Trading traders will use a limit or stop order to jump in on minor pullbacks in the trend. For example, in an up trend, if price suddenly falters, a Swing Trader might slap a stoplimit order above the previous high. If prices continue to decline, no harm is done. If the pullback reverses itself and the trend continues, then the order will be triggered, and those who are Swing Trading are long, and in play.

Can the SureFireThing Camarilla Equation help me in my Swing Trading?

The short answer is 'yes'. The SureFireThing Camarilla Equation gives you fairly low risk entry points - places to jump in where in theory you should have the entire weight of the market behind you. If you manage to open a position and want to make it a swing trading position, your task is then to 'shepherd' it to a breakeven state (i.e. monitor the trade until it improves enough so you can move your stop loss to breakeven point, or perhaps a small profit).

Then you can treat the position as a 'swing trading' position, i.e. monitor it once a day, or perhaps a few times a day. As the position continues to profit, keep moving the stop to lock in the profits. Eventually, the market will reverse and you will be stopped out, hopefully with a decent profit!

Points to note - almost half the time, a SureFireThing Camarilla Equation breakout will reverse before the end of day, so 50% or more of your swing trading entries will close the same day (although hopefully you will have escorted the trade to breakeven at least). Those that DON'T close the same day have large profit potential, and the cost to you is simple daily monitoring.

The subject of stop losses while swing trading is beyond the scope of this article.