JUN 5, 2020 BY : ATHUL RAJEEV, VENTESKRAFT.
Swing trading is a kind of fundamental trading in which positions are held for longer than a single day. Many fundamentalists are swing traders because changes in corporate fundamentals typically take many days, or even a week. To trigger sufficient market action to produce a fair profit. In fact, swing trading lies between day trading to trend trading, in the middle of the range.
A day trader may hold a stock anywhere from a few seconds to a few hours but never more than a day. A trend trader looks at a stock or index’s long-term underlying trends and can hold the stock for a couple of weeks or months. While swing traders hold a particular stock for a period of time, normally a few days to two or three weeks. That is between those extremes, and will trade the stock on the basis of its intra-week or intra-month oscillations between volatility.
The Right Stocks for Swing Trading
The first step to successful swing trade is to pick the right stocks. The best candidates are large-cap stocks which on the major exchanges are among the most actively traded stocks. Those stocks can swing in an active market between narrowly specified high and low extremes. Swing trading tends to be a very different activity in one of the two extremes of the economy. The bear market setting or the roaring bull market, than in a market between those two extremes. In these cases, even the most competitive stocks do not experience the same up-and – down oscillations. As in a few weeks or months when markets are relatively stable. In a bear market or bull market, momentum can usually only take stocks in one direction for a long period of time. Thereby ensuring that the best strategy is to trade on the basis of the longer-term bullish trend.
Strategies for Good Form
You can use swing trading as part of your investing strategy regardless of whether you are a bull or a bear. But since swing trading requires technical analysis that goes beyond traditional stock research. You can’t just lace up your shoes and head out. Instead, the following specific swing trading strategies could improve your chances for success.
- Play the uptrend – Trending stocks rarely move in a straight line, like Usain Bolt running the 100 meters. Instead, they usually move in a pattern that looks like a set of stairs.
- Capture gains on the upside – Since no one knows for certain how long a pull back or counter trend will last, bullish swing traders should consider making a trade only after it appears the stock is on the rise again.
- Know how to enter your trade – Bull swing traders who buy stocks could use a buy-stop limit order to enter their trades. That’s an order to buy a security at (or better) a given amount. But if you trade in the money options, you could be using a variable purchasing order, which includes at least two transactions being performed simultaneously.
- Gains of holding on the downside -Just like with bull market investing, you should only consider entering a swing trade after you’ve evaluated the potential reward and risk.
- Know how to enter your trade – Bear swing traders may deliver a trade using a sell-stop limit order. That’s an order to offer a short protection once it reaches your port of entry. Or you could buy a put option in-the-money. If that’s your choice, then you’d use a contingent order to buy the put after it reaches the entry price.