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Swing Trading Strategy
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Trade Stock in Just Two Days to Two Weeks Time
Summarized Overview
In this article, you'll learn what is swing trading, its basic working principle, the reasons why it is so popular among small traders and how to make sure the strategy is profitable.You'll also find information about its dis/advantages.
Explaining what is Swing Trading and its Basic Principle
Swing trading is a method of making money in stock market by making use of human psychological and emotional effect. Although stock price fluctuation is derived from fear and greed, there is also uncertainty in between. In the given uncertainty range is where swing traders made BIG PROFITS.The underlying assumption is really simple:
Though it is as easy as selling stocks when greed is peaked or buying them if fear is extreme, you must discover the probability of how the price will behave as expected. And your job as swing trader is just that, identify the turning points and sell into strength or buy into weaknesses. You can be holding your stocks anywhere from two days to two weeks.
The Reasons Why Swing Trading Is So Popular
Lower brokerage commissions from online stock trading opens the possibilities of making money in short term. In addition, as the news in Japan travels faster than a blink of eye, traders in US can be easily affected. The traders sensitivity will eventually create profitable price volatility in shorter time span, which is great news to day traders. However, since day trading is so stressful and has limited profits (but high trading cost), swing trading strategy evolved.Swing traders is not holding the stocks as long as the trend traders do based on the assumptions that long term trading best suited for institutional fund investors than smaller private traders. The reasons might be due to they have the best possible information which the average traders don’t have as well as they are able to incur huge losses that enough to make most private traders bankrupt. And the good news is, institutional fund managers can’t use swing trading strategy, owing to the bulk size of stocks that they are holding.
Besides, there are syndicates that manipulate the stock market prices by provoking some fear and greed effect among the stockholders to drive the price volatility and volume liquidity. So, whoever plans to trade the stocks must live with the extreme points to point’s volatility that is most likely ‘deliberately created’. To swing traders, they will make use of this short term volatility before it ends and stabilises in the long run.
The Advantages of Swing Trading
- It is not as stressful as day trading, so you don’t have to sit in front of a screen all day long.
- Takes advantage of other traders’ weaknesses, which mostly are beginners and novice traders.
- Institutional fund managers unable to use this strategy due to their bulk holding entities.
- Limited risk for not holding the stocks too long.
The Disadvantages of Swing Trading
You need to identify EXACTLY when to buy, what is the stop loss limit if fails and when to sell for profits. To do this, you need to be expert in asset allocation and risk management since everything it is all about probabilities. And to get started with great success, you need to have advanced but friendly stock charting software such as SwingTracker which come with a price.
How to Make Your Swing Trading Strategy Profitable
Choose the right stocks that are fluctuating at extreme ends. To maximize profits, swing traders are usually trading blue chip stocks as these stocks are widely traded with sufficient volume. They hold the stock when the price is rising and simply switch to another stock when the trend is reversed.After all, the stocks are generally moved in one direction in a rising or falling trend. Therefore, swing trading won’t work in an extreme bull or bear markets.
However, you can still make profits from trend trading in that market.
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