Swing Trading Methods
Swing trading is a stock trading method designed to create profit from short-term trades within long-term trends. Traders identify stocks in definitive trends, entering on price retracements and riding the swings upwards. Swing trades typically last 2 to 5 days or a bit longer. Here is some more information about the various swing trading methods.
Other People Are Reading
-
Identification
-
Swing traders work on making entrances and exits for maximum profit in trades usually lasting less than a week. Before entering a trade, they have already decided on an exit strategy. Traders can exit after a stock reaches a specific price, or they can set a trailing stop sell order toward the end of each trading day. The stop order triggers an automatic sell if the stock price dips to a certain level. Upon entering a trade, swing traders typically enter a stop order just below the price of purchase, to cut their losses in case the upward price move disintegrates. The most simple swing trading technique is to buy in a pullback as soon as the price begins moving upward, and sell when it starts to drop.
Time Frame
-
Some traders use trend lines to pinpoint better places of entry and profit-taking. They draw a line under the bottom and over the top of the price moves for a certain time frame, then extend the line into the future. These lines can predict ideal places to buy and sell as a stock follows the trend upward. This swing trading method is reliable because short-term activity usually follows consistent percentage movements in price fluctuations.
-
Significance
-
Another entrance strategy focuses on a very short downtrend within a long-term uptrend. A diagonal line is drawn over the top of this downtrend, which might last for several days. When the price breaks out over this line with higher-than-average trading volume, this is a signal to buy, and the uptrend is back on track.
Function
-
Support and resistance levels also involve drawing lines under and over price movements. Sometimes during a long-term uptrend, a stock price will begin rolling up and down between two price points, for instance between $15 and $20. The lower number is called support because the price does not drop below that level. The higher number is resistance, where the price has trouble breaking out. A swing trader might buy close to $15 and sell close to $20, or use a trailing stop in case the price does not reach $20. If the price drops below the support line, that is a signal to exit immediately.
Considerations
-
Conversely, when the price breaks out over the resistance line with higher-than-average volume, that is a signal to buy. Ideally, the resistance line now becomes the support line, and the trader initially places an automatic sell just under that line to exit if the momentum falters. Although this swing trading method is unreliable and will result in several small losses before a successful trade, that one success can be highly profitable, making the technique worthwhile. The method is good for experienced swing traders who have the patience to handle several small losses and the discipline to immediately exit trades that are not working.
Effects
-
In the price break-out method, the least risky entry is to wait for a price pullback. In this case, where the resistance has been at $20 and then the price jumps to $22, the trader might wait for a pullback to $20.50 to enter. The problem here is that sometimes momentum moves do not retrace at all. They move from $20 to $22 to $26 and never look back. Experienced traders do not become upset and buy at $26. They calmly wait for the next opportunity to come along.
-
