Swing Trading For Profitable Position Trading

Swing trading is something which sits in the middle of day trading and trend following. Swing traders would hold on to a particular stock for a period of time, for example, from a few days to a couple of weeks. He would then trade this stock on the basis of its intra-week or intra-month price indications between optimism and pessimism. If you want to become a swing trader, you need to pick your stocks right. The best stocks that you could pick are the large-cap stocks, which are frequently traded in the major markets. These could be Intel, Microsoft, and Cisco Systems. These stocks swing appreciably between broadly-defined high and low extremes. You, as a swing trader, would ride the wave in one direction for a week or two, even a month, and when the stock reverses its direction, you will ride the waves the other way.

Between the two extreme markets, i.e., the bear and the bull market, swing trading is quite a different challenge than what is presented by the market in between the extreme swings. Even the most active stocks do not display the same kind of ups and downs in these extremes, which they would when indices are relatively stable for a few weeks or months. It has been generally seen that in a bear or bull market, the momentum generally carries the stock in one direction only. This ensures the strategy of trading the stock in terms of long term directional trend.

The best positioning of a swing trader is when the market is not going anywhere, with the index rising for couple of days, perhaps holding it there for a day, and declining again for the next two days. The events are repeated over and over again. Some two or three months pass with the major indices retaining the same average movement, maintaining their original levels, and in between the swing trader has had many opportunities to catch the short-term movements of the stock.

Research of historical data shows, that in a market, trading on liquid stocks, swing traders tend to trade above and below a baseline value. Swing traders do not look for a perfect time to buy or sell a stock. They do not time their purchases when the stock prices lie at its exact bottom, selling them when they are exactly at its top. In a typical scenario, swing traders wait till the stock has reached its baseline, and as it starts to take a swing for the up, they would buy the stock. For profit considerations, the swing trader would exit the trade when the stock comes to its upper or lower channel line. The only aspect is that the trader would have the risk of missing the best opportunity.

As far as swing trading is concerned, the general principle in making profit is the same, whether be it swing trades or trend following. The rule of the thumb is, "sell the losers, and let the winners ride"! Traders, who are longer term investors, make profit by selling the stock when it has appreciated. They usually hold on to it during its decline, and wait for the rebound opportunity. In this case the traders are required to infer correctly as to when it is time to get rid of the stock, within their projected time range. In swing trading, selling a stock, when its value has increased by a certain pre-fixed multiple, often pays off. But this does not give the trader the optimum opportunity in profit-making. The stock should ideally be held on to, and some degree of flexibility is required to be allowed within this swing trading period.

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