Profiting with Swing Trading
How to identify the right securities
As it was mentioned earlier, not every security is suitable for swing trading. The security must have certain traits to be eligible for this trading approach. You need to analyse past price charts to identify stocks that trade within a range, and have large enough swings to make a decent profit after trading costs. Also, it is important to ensure that you are allowed to short sell stocks in your jurisdiction. Currently many countries ban short selling of stocks, but not futures or currencies.
Trading uptrends
In case of an up trend, the price of a particular stock first moves upward, then takes a break and slides down a bit and then moves upward again. The process repeats itself and goes on. The only difference is each time it repeats the movement pattern, it obtains a higher high point and a higher low point than the previous movement. The whole movement pattern takes a zigzag shape.
In case of applying swing trading approach on this kind of stocks, you need to purchase the stocks when the price pulls back and wait for it to move upward. You need to follow the Master Plan to determine when to close your positions to get the maximum profit before the trend starts to reverse.
Trading downtrends
In case of a down trending security you will still notice a zigzag shape of the price movement but it will gradually move downward. This is much of the opposite of the up trend. Here the price will move downward and then will pull up a bit and then again will fall down. Every time the wave occurs, it will have a lower low and a lower high point.
In order to make profit from a down trending security, you need to short sell the security when the price is sliding down and buy them while the price is temporarily pulling up.
Conclusion
Swing trading is a trading approach where a trader invests his capital in a stock which is experiencing price fluctuation in a regular pattern but not too frequently. It relies on a security repeating past trading patterms. You can apply this approach on a security in both upward and downward price movements by buying while the price is at the lower point and selling when the price has moved to the high range.
To ensure profitability, it is critical that you have a clearly articulated trading plan, and follow it closely.
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Tags: Master Plan, price movements, stocks, Swing trading, Trends