Swing trading is a short-term trading technique where traders are usually in a position for a total of a few days to a few weeks. Swing trading is based on a phenomenom that occurs in the stock market where stocks tend to make equally distanced moves up or down. Swing trading is based on three moves. For the long side you would start off with an up move (A), then a retracement (B) which usually retraces 1/3 to 1/2 of (A), then another up move (C) usually a similar distance as the (A) move. See below for example:
Swing trading is also useful for going short in the attempt to profit from downward moves. For the short side you would start off with a down move (A), then a retracement (B) which usually retraces 1/3 to 1/2 of (A), then another down move (C) usually a similar distance as the (A) move. See below for example:
Now that we know what a swing move looks like let’s look at how to apply a swing trade. First let’s look at the long side. You need to look for a strong upward move followed by a retracement that retraces 1/3 to 1/2 of the previous move. Then, once the retracement appears that it is reversing and going back higher place a buy order. Once you’re in the postion place a sell stop below the previous lows of the retracement to protect yourself on the down-side. Look at the following illistration:
For a short trade you need to look for a strong downward move followed by a retracement that retraces 1/3 to 1/2 of the previous move. Then, once the retracement appears that it is reversing and going back lower place a sell short order. Once you’re in the postion place a buy stop above the previous highs of the retracement to protect yourself on the up-side. Look at the following illistration:
Swing trading is simple and effective! You can also use swing moves to come up with up or down price targets for the next move in the stock (reference the previous blog titled “Dertmining Price Targets”).
For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com
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