SWING TRADES
A stock is generally in one of 3 stages: uptrend, downtrend, and consolidation Fortunes are made by correctly identifying trends and reversal of trends.
The following are targets and strategies for executing swing trades:
1. For a stock on an uptrend, watch for a "retracement" to enter long a swing trade. BUY the stock when it has completed the retracement, betting that the stock will continue its uptrend. Sell the stock when it is about to retrace again.
2. For a stock on a downtrend, watch for a "bounce" to enter short a swing trade. SHORT the stock when it has completed the bounce, betting that the stock will continue its downtrend. Cover the short when the stock is about to bounce again.
3. For a stock in a trading range, identify the support and resistance levels. Buy when the stock is at the support level, and sell when it hits resistance. Braver traders would also attempt to short a stock at the resistance level, however, generally a short strategy carries a higher risk than a long strategy when a stock is in a horizontal trading range.
Sounds easy doesn't it? It may be at times, and other times not. A stock can surprise a swing trader with fakeouts, longer or shorter swings than previous patterns, and sudden reversals due to earnings or news reports. Also, it requires technical analysis knowledge and some luck to read charts and correctly identify the end of retracements or bounces.
Using stops are a must when swing trading. One common danger to avoid is a trading pattern of small wins and large losses.
Remember, for swing trading, we are betting that a past price pattern repeats itself. Keep an open mind that the pattern may not repeat itself, in which case, a stop should be triggered
In order for us here to speak the same TA language and so understand each other better, I've framed up some parameters for this forum:
1. We'll be using Trader Vic's definition of a trend and trend reversal. Chapter 7 in his book "Methods of A Wall Street Master" describes how to identify a trend and a reversal of trend. The book cost about $20 and IMO, well worth to own. Alternatively, chapter 7 is less than 20 pages and would be an easy read at a library.
2. For stock charts, we can use the following chart sites... they are free and would be sufficient for the purpose of swing trades.
siliconinvestor.com.
For Canadian stocks:
207.61.23.99.
Feel free to post other charts such as Qcharts, ESignal, Trade Stations, etc.
3. For technical analysis tutorials, and end of day market analysis, we can use
stockcharts.com
I find this site terrific! Not only does it have end of day market analyses and stock chart charting capabilities it also has well written TA tutorials and explanations on TA indicators.
4. If you can't find answers to your TA questions on the above site, I would recommend Jack Schwager's Book "Getting Started in Technical Analysis" which cost around $30. In my opinion, this is a good book to use as a reference for real world chart reading especially if you're new to TA.
Have fun, and be profitable! |
