This article is going to go in-depth about a key swing trading technique on daily charts. While this may be considered advanced swing trading, this strategy is suitable for all investors. It is perfect for home study. We will tell you how to do proper technical analysis and show you when to enter the trade and when to exit the trade. We will do this by teaching you how to set the right profit target.
Most of our students adopt either my Momentum or Reversal Day Trading Strategies. Once you choose the one that is a good match for your skill level, your risk management tolerance, and the time of day you plan to trade, you are ready to get started. Students in our Day Trading Course can download our written trading plan documents and I’m able to actually oversee them while they are trading.
Swing trading is one of the most popular forms of active trading, where traders look for intermediate-term opportunities using various forms of technical analysis. If you're interested in swing trading, you should be intimately familiar with technical analysis. Investopedia's Technical Analysis Course provides a comprehensive overview of the subject with over five hours of on-demand video, exercises, and interactive content cover both basic and advanced techniques.
It is important to understand the fundamentals of intraday trading in order to make consistent profits. A good tip is to trade with the current market trend. If the market is falling, sell first and buy later, and vice versa. Make an intraday trade plan and stick to the plan. Set your desired profit and stop-loss limit. Do not be greedy. Instead, book your profits at regular intervals. Maintain stop-loss levels. It helps you to limit your loss if the market does not perform. Also, choose highly liquid shares and trade in a small number of shares at a time, if you are not a seasoned trader.
Much research on historical data has proven that, in a market conducive to swing trading, liquid stocks tend to trade above and below a baseline value, which is portrayed on a chart with an EM). In his book, "Come Into My Trading Room: A Complete Guide to Trading" (2002), Dr. Alexander Elder uses his understanding of a stock's behavior above and below the baseline to describe the swing trader's strategy of "buying normalcy and selling mania" or "shorting normalcy and covering depression." Once the swing trader has used the EMA to identify the typical baseline on the stock chart, he or she goes long at the baseline when the stock is heading up and short at the baseline when the stock is on its way down.
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. Swing traders receive sufficient feedback on their trades after a couple of days to keep them motivated, but their long and short positions of several days are of the duration that does not lead to distraction. By contrast, trend trading offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position that long without getting distracted. On the other hand, trading dozens of stocks per day (day trading) may just prove too white-knuckle of a ride for some, making swing trading the perfect medium between the extremes.
Ultimately, each swing trader devises a plan and strategy that gives them an edge over many trades. This involves looking for trade setups that tend to lead to predictable movements in the asset's price. This isn't easy, and no strategy or setup works every time. With a favorable risk/reward, winning every time isn't required. The more favorable the risk/reward of a trading strategy, the fewer times it needs to win in order to produce an overall profit over many trades.
Price volatility and average day range are critical to a day trader. A security must have sufficient price movement for a day trader to achieve a profit. Volume and liquidity are also crucial because entering and exiting trades quickly is vital to capturing small profits per trade. Securities with a small daily range or light daily volume would not be of interest to a day trader.
To offset this, day traders are often offered the "opportunity" to leverage their portfolios with more margin, four times the buying power rather than double. Taking larger leveraged positions can increase percentage gains to offset costs. The problem is that no one is right all the time. A lack of focus, discipline, or just plain bad luck can lead to a trade that goes against you in a big way. A bad trade, or string of bad trades, can blow up your account, where the loss to the portfolio is so great the chances of recovery are slim. For a swing trader, a string of losses or a big loss can still have a dramatic effect, but the lower leverage reduces the likelihood that the results wipe out your portfolio.
Swing traders should select their candidates from the most actively traded stocks and ETFs that show a tendency to swing within broad well-defined channels. Virtually all trading platforms provide a function to enter channel lines on a price chart. The trader should keep a list of stocks and ETFs to monitor on a daily basis and become familiar with the price action of their selected candidates.
Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns and pick appropriately to make profits. But for newbies, it may be better just to read the market without making any moves for the first 15 to 20 minutes. The middle hours are usually less volatile, and then movement begins to pick up again toward the closing bell. Though the rush hours offer opportunities, it’s safer for beginners to avoid them at first.