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How To Do Swing Trading

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What Is Swing Trading

Swing trading is buying low and selling high in a short span of time. Some traders do it Intraday called as day traders and some take position for a few days.

Swing trading combines fundamental and technical analysis in order to find the stocks direction from the current position. Swing traders do not look for only up direction, if they feel the stock may go down they short them. All they are looking for is short momentum.

When they see the stock is not poised to move they do not take the trade. The benefit of swing trading is efficient use of time and money and higher returns. However their are drawbacks as well like high brokerage commission and high losses if their trade goes wrong.

Swing trading can be difficult for the average retail trader who is not equipped with either technical or fundamental knowledge. Some of the good technical indicators are Bollinger Bands, Candlesticks, moving averages, Average True Range – ATR etc.

The professional traders have more experience and information. They always trade in brokerage houses with lower brokerages. On top of that they get better margin.

Large institutions trade in very big lot sizes. They usually get in an out quickly. Some automate their trades. This is called algorithmic trading.

Knowledgeable retail traders can take advantage of these things in order to profit consistently in the marketplace. In this article, I will lay out what should be daily routine for traders like you and me. Its not that hard to be successful.

How To Do Swing Trading

Before reading this article I suggest you read this article on Swing Trading Rules.

Pre-Market Research:

You must read newspapers to know what has happened in businesses when you were sleeping. Look for any major news that may move the markets. This will help to find potential opportunities to trade.

Keep An Eye In The Following

  • Overall market sentiment: Whether it is bullish, bearish or neutral
  • Key economic reports
  • US Markets
  • Sector news if any
  • Government announcement

    Once all of the above is it will be easy to screen stocks. Stock Screener is a good and free website that can screen some stocks for you.

    Now that you automatically got news of the companies you want to trade you can look for the best opportunity to trade.

    You can enter a position with a fundamental move and exit with some kind of technical analysis.

    How To Find Fundamental Based Move

    Headline making news, or big order acquisitions, bad debt, results, insider buying, buyouts, takeovers, mergers, restructurings, acquisitions and other similar events.

    Al of the above are major news that will shake the stock either up or down. Take the position as soon as you read the news.

    These types of opportunities often carry a large amount of risk therefore hedge your trades especially if trading futures. Overnight positions should never e traded without a hedge.

    News based trades are mostly positional trades as the good/bad news can move the stock at least 5-10% then reversal can take place.

    Over time these kinds of trades will reward those who carefully research each opportunity and hedge their positions to make sure losses are capped even if there is a gap up or down opening against their trade.

    Trades Based On Charts

    Swing traders also take trades based on charts. Give emphasis to moving averages. 20 days Moving Average is good for derivative swing trades and 200 days moving averages is good for investor swing traders. Here is a article on how to trade moving average

    Other important technical tools are key support or resistance level (easy to find on 200 day moving average), ATR (average true range), triangles, channels, Wolfe Waves, Fibonacci levels, Gann levels, etc.

    Keep Five Positions Open At A Time

    You may be tempted to trade a lot of opportunities when you get some experience but they will get hard to manage. All swing trades done on derivatives (options/futures) have to be managed well so calculations take time. Its better to be focused on 5 scripts only as you will be able to manage them well, else emotions will take over and you will destroy your account.

    Investment swing trades (pure equity investments for 2-6 months) can be up to 20 stocks at a time.

    Investment swing trades are easy to mange as they do not have an expiry date but derivatives have an expiry date so its better to have them less in number.

    Check Positions Twice A Day Especially If Positions Are Hedged

    The beauty of hedging is that you need not sit in front of your computer all day along until the markets are open. Gap up or down is taken care by the hedge, all you have to do is take an exit decision. You an check once in the morning and once during lunch time to hold or exit the position with profit or stop loss.

    Never Adjust A Position To Take More Risk

    Swing trade is never traded on hope. Once the plan is made stick to it. Do not move your stop loss. Only adjustment has to be moving your stop loss up to make more profits. Read this article on how to let the winners run in stock trading.

    Carefully Record All Trades For Tax And Performance Evaluation

    This is as important as taking the trades themselves. Once the year is over you have to send this data to your tax professional. Performance Evaluation recording will make you a better trader month after month. Evaluation of trades will help you to identify things that need improvement.

    What You Can Do If You Want To Learn Hedging?

    You can do my course which has five strategies that teaches how to hedge properly options with options, futures with options and equity with options. Once you complete the course you will become a better trader and learn the importance of hedging and stop trading naked (without hedge) for ever in your life. Fees can be paid here.

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    Open ZERO Brokerage FREE Share Trading Account - Buy and Sell Stocks Without Brokerage - Set GTT (Good Till Triggered) Orders on System and Forget

    Traditional brokers charge a lot for brokerage; however, this broker does not charge anything for stock buying and selling. Also, you can set GTT (Good Till Triggered) order after buying a stock, so that the system can sell the stock automatically at your target price even if you are not monitoring the market. Only 25k is blocked for option selling with hedge. Also, you get a lifetime free account in Sensibull (virtual trading app & strategy builder) which charges Rs.800/-+GST a month. It takes 5 minutes to open an account online. Click here and Open Free Account with Them Today >>
  • About the author: Dilip Shaw I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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