Swing Trading' a Growing Lure for Online Investors
Stocks: New breed of market player tries to ride moves lasting up to two weeks--a strategy that could be called Day Trading Lite.
By WALTER HAMILTON, Times Staff Writer
Don't even ask Gail Jackson about day trading. The 52-year-old Floridian day traded stocks for a year, and ended up with $75,000 in losses and a slew of emotional scars to show for it.
"It really did a number on me," said Jackson, a semiretired small-business owner. "I'd just sweat and get a headache. I'd get nauseous. It was just an awful, awful feeling."
So has Jackson morphed into a conservative buy-and-hold investor? Hardly. She's now a "swing trader." Rather than trading in and out of a stock on the same day, swing traders typically buy a stock one day with the goal of selling at a profit a day or several days later.
Think of it as Day Trading Lite. Whereas day traders seek to profit from momentary fluctuations in stock prices, swing traders try to ride moves that can last anywhere from two days to two weeks.
The rise of swing trading among the burgeoning ranks of online investors is another explanation for the explosion of stock trading volume in general over the last few quarters, particularly for Nasdaq stocks.
Many professional Wall Street traders have insisted that most people who try their hands at active trading don't make money, after counting commissions and taxes.
But soaring Nasdaq volumes, and wild moves in individual technology stocks, make it clear that many individuals are hooked on the action--helping to fuel continued volatility in the market overall.
For burned-out day traders, the less frenetic pace of swing trading offers new hope: the idea that handsome profits can be had if only they can latch onto the right trading style.
"I love the swing trading. My gains have been much better, and it seems like it's not as stressful," Jackson said.
"The swing-trading style is the style of the future," proclaimed Oliver Velez, chief executive of Pristine.com, one of the longest-running Internet trading sites, which promotes swing trading and day trading.
But to doubters, swing trading is nothing more than day trading cloaked in a politically correct marketing spin. Both styles rely on the same risky "momentum" strategy--chasing stocks that are already hot. And there's just as much risk that stocks can go suddenly awry on swing traders and saddle them with bruising losses.
A Hidden Risk
Swing trading "creates the illusion that it's less risky" but "it's very much the same," said Tim Bourquin, co-founder of DayTraders USA, a large group of day traders.
"It's a lot more fashionable now to say, 'I'm a swing trader' rather than 'I'm a day trader,' " Bourquin said. "People feel it doesn't carry the stigma of, 'Oh, you're a day trader. You're throwing your money away.' It seems to them like it's more socially acceptable."
Yet swing trading may actually be riskier than day trading for some newcomers, because they may be lulled into the belief that they can trade as a hobby and don't have to keep a vigilant watch over the stocks they own.
Be that as it may, the number of Web sites devoted to swing trading appears to be increasing, and some sites that had previously catered to day traders are rushing to add swing-trading services.
For example, the site through which Jackson trades, MTrader.com, added a swing-trading chat room last year after starting out as a day-traders' haunt in February 1997.
"There's a ton of people who have tried [day trading] and have washed out, and they're not in the game anymore," said Brandon Fredrickson, who runs MTrader.com's swing-trading operation. "And they're coming back and saying, 'Well, let's try this out.' Because it's easier for some people. It's slower. It's not as frantic."
Fredrickson estimates that about half of the 97 people who fork over $100 a month for access to his chat room are former day traders. And about 15 to 20 people a day are signing up for trial memberships, he said.
"Usually, we get them after [day trading] has just kicked them in the gut," said Jeff Tappan, MTrader.com co-founder.
Swing-trading sites dish out stock picks, and some have chat rooms in which head traders engage in dialogue with members about buying and selling.
They preach as gospel that swing trading is inherently less risky than day trading--but still quite lucrative.
The aim of day trading is to buy stocks--usually technology issues--that fluctuate wildly during the day, ride them up as little as an eighth of a point (13 cents a share) and sell them, hoping to repeat the process dozens of times a day.
To turn the fractional gains on each trade into big money, day traders typically buy 1,000 shares or more at a time.
The danger, of course, is that even a few half-point setbacks in a stock during the course of the day can mean big losses.
Swing traders, by contrast, typically sit through intra-day gyrations, hoping that a stock's general trend over a day or two will be clearly up, or clearly down.
A common swing strategy is to seek stocks that have risen strongly recently but are now easing back on light profit taking. The central idea: Jump on board quickly if the climb resumes.
Because they're shooting for several points of profit on each stock rather than fractional gains, swing traders say, there's less pressure to buy and sell at precisely the right moments. They also don't need to buy the most volatile stocks or buy a large number of shares, proponents say.
And whereas day traders need sophisticated computer hook-ups to trade, swing traders generally can get by with only a basic PC and an online connection.
More Time to React
What's more, swing traders say, they save on commission costs by trading less frequently, and have time to study the trading patterns of stocks before rushing into them.
Perhaps most important, swing traders say, they can enter so-called stop-loss orders, which are designed to contain losses by instructing a broker to automatically sell a stock if it falls to a certain level.
Day traders, by contrast, must make split-second decisions, and the mechanics of their trading style don't allow for stop-loss orders.
"I like swing trading because I know what the stock is, I know what the stock does and I know why I'm entering the trade," said Deborah McClure, a married mother of two from Abilene, Texas, who says she made more than $100,000 in her 18 months of day trading but quit because of the stress.
"In day trading, I don't know what it [a stock] is, I don't care what it is. It's just four letters [a stock symbol] to me, and I'm looking for a move," she added. "I just sleep better this way."
McClure, who owns a pair of independent bookstores and claims to have tripled her money in six months of swing trading, likes that she no longer has to sit glued in front of a computer screen all day. Now, she can run errands or pick up her children from school during the trading day.
"If I run to the restaurant next door to get a soup and sandwich I'm not panicking, 'Oh my gosh, I could be losing thousands of dollars while I'm standing here waiting on a sandwich,' " she said.
But she acknowledges that the relatively slower pace of swing trading took some time to get used to. "For a lot of us who are reformed day traders, we'll say, 'God, this is so slow.' Then we have to calm down and say, 'Oh wait, that's what we want. Slow and steady is good,' " she said.
One of McClure's favorite stocks to trade is Montreal-based Optimal Robotics Corp., which makes supermarket devices that let shoppers scan, bag and pay for groceries without waiting in a checkout line.
From mid-October through the end of last year, she bought and sold Optimal Robotics shares in a sequence of seven trades, earning a total of $4,958.75 after commissions but before taxes.
The shortest period she owned the stock was less than one day, and the longest was 15 days. McClure likes the stock because its moves are sedate compared to fast-moving Internet stocks. And she has used the company's scanning technology at her local grocery.
When stocks fall, day traders are taught to sell immediately to prevent knockout losses. But when Optimal Robotics has stumbled, McClure has held on in the belief that the shares will rebound. Until now, at least, they always have.
"It doesn't have the big news that's going to cause the big shakes. It's a pretty stable company," she reasoned. "I wouldn't do this with Amazon. I wouldn't do it with AOL. But this is a company that makes a product that I can go see, and to me that makes a difference."
Swing-trading proponents claim that novice investors are more successful at swing trading.
"We have had a lot greater success teaching people how to calmly make money with a swing-trading style than frenetically trying to do it with the conventional day-trading style," Velez said.
As a group, about 85% of swing traders and day traders lose money within the first six months, he said.
His belief that there's a higher swing-trader success rate is based on his anecdotal impression, Velez acknowledged; he has no specific swing-trading figures to back up his position.
Critics say swing trading, like day trading, is just another form of legal gambling.
Swing traders generally don't research company earnings or the prospects for the companies' products. They try to size up winners based solely on the look of their stock charts. In essence, they're seeking the same momentum ride as day traders, only for a slightly longer period of time.
'It's Not Easier'
"In reality, it's not easier" to swing trade, Bourquin said. "It [just] gives people the illusion that it's easier."
Adds Bradley Skolnik, the state securities commissioner in Indiana: "It's just a slightly different wrinkle on the old day-trading game," he said. "Instead of day trading, it's a form of 'days' trading."
But the desire to be in on the market game--and, of course, the desire to make a killing--keeps many investors enthralled with trading.
After losing $400,000 in day trading, one La Puente man, who asked that his name not be used, said he decided to quit trading altogether. But after discovering swing trading, he sold his business last year to raise the cash to give trading one more shot.
"If I didn't think I'd be a good trader, I wouldn't be trading again with those kind of losses," he insisted. "I'm not a gambler." |
