Swing Trading Strategies

A Look at Basic Swing Trading Strategies

Swing trading can be looked at as an ideal short-term trading strategy for investors that want to play the short game, but feel uneasy about becoming a day trader. By looking for and identifying trends over a period of several days or even a couple weeks, the swing trader is afforded a little more leeway to make decisions, which could add a sufficient level of comfort. That’s not to say it’s an effortless strategy to deploy; indeed, the practice does demand a reliable methodology to get done properly. Fortunately, there are a few strategies that the investor interested in swing trading can use to maximize profit and minimize risk potentially.

The Strategy Before the Strategy

In a way, the most important strategy a swing trader can deploy happens before an official policy is determined. The reason for this is because different strategies within the swing trading formula are called for based on the way the market is heading. To get a bead on this plan, it’s important for the swing trading investor to identify the baseline.

The baseline is the benchmark that establishes a foundation for measuring or comparing current values with past values. A baseline is an essential component for swing traders, as it informs them which way the market or a specific stock is trending – if it’s trending at all. The data ascertained in the aftermath of baseline establishment, which is typically mined through technical analysis, can influence the type of strategy swing trading investors choose to deploy.

The Bullish Swing Trading Strategy

An upwardly trending stock can be an exciting thing to monitor once you’ve bought into the stock that’s moving in an uptrend. The trick with a bullish swing trading strategy is to capture that initial movement upward that kicks off a major part of the trend and getting out before a reversal makes the stock purchase futile.

The way to do this is to use technical analytically-driven data to find out a proper “entry point,” which can be found by deciphering the stock’s trends as it ebbs and flows along its baseline. Once this has happened, it’s important to use this analysis to determine the “profit target,” which is established by finding out the highest point in the stock’s recent uptrend. Finally, a “stop out” position should be set. Limits mark the price point where the trade should be dropped as a means to minimize losses.

The one drawback to implementing this strategy is that it comes with a tendency to stop short of the trend’s full financial gain. On the other side of the coin, of course, is that it also helps prevent investors from feeling the full brunt of loss should the stock or market take a tumble.

The Bearish Swing Trading Strategy

It is indeed possible for swing traders to take advantage of a market or stock situation that is on the downtrend, although it’s admittedly not as clean as the bullish strategy. The trick to pulling it off is able to spot a counter trend or a “bear rally,” in which a stock displays a temporary uptick in movement in the midst of its downward pattern.

The elements relating to entry and stop out points are similar to that of a bullish trade, but they do work a bit different. On a bearish trade, investors can enter if the stock plunges lower than the counter trend’s previous day’s low. Meanwhile, the stop out point is listed at the highest price of the recent counter-trend as discovered through technical analysis. The profit target would be the lowest price of the current downtrend, with the difference between the entry point and the profit target being the reward that’s honed in on.

Because counter-trends in a bearish stock can be tough to spot, this swing trading strategy is somewhat difficult to pull off. However, it can be done successfully if the investor has a sufficient amount of patience, diligence of study, and the fortitude to take a few knocks while learning the ropes.

The Fading Strategy

Sometimes, it’s possible for swing traders to earn money by going against the grain of the stock trend. This strategy is known as fading; to put it in the common vernacular, it may be viewed as playing the “don’t pass” line on a craps table in Las Vegas. In this strategy, investors will take a bearish position in the midst of an uptrend near its high swing position. Short positions are taken because the investor felt the stock will course correct and go back down. During a downtrend, investors will snap up shares near the low swing position on the expectation of the stock rebounding and trend back up.

The apparent goal behind the fading strategy is only to be in the stock during the counter trend and to exit the trade before it ends. Again, it’s not the easiest strategy to deploy, since it necessarily involves going counter to the overall expectation, albeit temporarily. Still, savvy investors can use this swing trading strategy to their advantage as long as they approach things with great care and scrutiny.

An Effective Strategy to Use

Generally speaking, swing trading is considered to be a rock solid trading plan. What’s more, it’s regarded to be one of the best styles for beginning investors to learn how to play the market. Of course, this doesn’t mean that seasoned pros can’t jump in on the fun and enjoy what the strategy has to offer. It works so well because those that involved in swing trading can find a sweet spot regarding engagement. Those that look to two-to-three-day trading windows will get sufficient feedback to hold their interest, while those looking for several days won’t be led to distraction or need to “do something.” What’s more, this fluctuating timeline affords investors the kind of cushion that doesn’t exist during day trading, which keeps things comfortable. While this doesn’t mean that it’s an easy, breezy system – having a grasp on technical analysis is still a must – it can be a system that hooks the investor into a lifetime of investing.

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