| Swing trading is a short-term trading strategy that | | | | suffer long-term losses is a strong money |
| involves holding positions for one to several days. It | | | | management system. Unfortunately, the majority of |
| differs from day trading in that day traders, by | | | | traders fail to develop or implement this critical |
| definition, must close out their day's positions prior to | | | | aspect of a sound swing trading plan. |
| market close. As such, they do not carry overnight | | | | Good money management requires establishing a |
| risk. Swing traders have a longer time horizon of | | | | pre-defined exit for each position before it is opened, |
| several days, and will accept the risk of holding | | | | so as to limit losses when an anticipated swing does |
| positions while the market is closed. | | | | not materialize or reverses prematurely. Beyond |
| Swing trading relies upon the stock market's natural | | | | limiting losses on a losing trade, sound money |
| tendency to move in a non-linear fashion. Stock | | | | management must also take into account the profit |
| prices, or the prices of any traded security for that | | | | side of the equation and allow successful trades to |
| matter, do not move in straight lines. They tend to | | | | mature sufficiently so that profits are sufficient to |
| make a move higher or lower, consolidate for a | | | | out pace losses and produce an acceptable return. |
| period of time, then continue the prior move. | | | | One of the best swing trading systems that I have |
| In the case of an upward trending stock, it will reach | | | | reviewed stages the profit exit, so that successful |
| new price highs and then pause to consolidate it's | | | | trades result in a guaranteed profit while still allowing |
| gains. That push into new high territory is referred to | | | | for unlimited upside potential when a stock is really |
| as a "swing high" and its subsequent retreat during | | | | prone to move favorably. This allows a trader to |
| the consolidation is called a "swing low." A swing | | | | move a position of their trading capital out of harm's |
| trader wants to purchase the stock as it returns to | | | | way and avoid the emotional struggle of trying to |
| the upward trend, after completing the swing low. | | | | determine whether to "let their profits run," or to |
| They want to trade the swing, hence the name. | | | | "take their money off the table." |
| A similar process is followed for stocks in a | | | | The popularity of swing trading is due in no small part |
| downtrend. Most good swing trading systems | | | | to the fact that it can be undertaken by the majority |
| incorporate both a bullish and bearish outlook, allowing | | | | of persons who have a day job. Few employers will |
| a trader to position trades for differing market | | | | permit you to day trade during market hours, but |
| conditions and to diverse their portfolio of trades. | | | | once you leave the office for the day you can |
| While all prudent swing traders utilize stop loss order | | | | certainly sit down in front of your home computer to |
| to prevent any one trade from creating a sizable | | | | check on your positions. |
| account loss, some swing traders will also have a | | | | With the sophisticated conditional orders available |
| pre-defined profit stop. A profit stop will take them | | | | through most online brokerages, it is not necessary |
| out of the trade once the stock reaches a | | | | to agonize over every market tick. You can easily |
| pre-determined price level. Other traders will hold their | | | | place a stop loss order that will close your trade to |
| position so long as the trend continues, relying upon a | | | | limit losses, while simultaneously placing an order that |
| trailing stop loss or similar device to take them out of | | | | will capture the profits from your winning positions. |
| the trade once a counter move occurs. | | | | Such sophisticated systems are now available to the |
| The concept behind swing trading is simple, but not | | | | public. With a modest investment on your part, you |
| one easily implemented. The one factor that most | | | | can very quickly master the art and science of swing |
| separates successful swing traders from those who | | | | trading and begin building your financial dynasty. |