Intro to Swing Trading and The Idea of it

Swing Trading is a trading method that is somewhat between day trading and trend following . Swing traders hold a particular stock for a period of time, generally between a few days and two or three weeks, and trade the stock on the basis of its intra-week or intra-month oscillatior signals between optimism and pessimism.  

The first key to successful swing trading is picking the right stocks. Its been said that the best candidates are large-cap stocks that are among the most actively traded stocks such as, IBM, Microsoft , or maybe Intel.   In active markets, these stocks will swing between broadly-defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks, only to switch to the opposite side of the trade when the stock reverses direction.

It should be noted that in either of the two market extremes, the bear-market environment or the bull market, swing trading proves to be a rather different challenge than in a market that is between these two extremes. In these extremes, even the most active stocks will not exhibit the same up-and-down movements that they would when indices are relatively stable for a few weeks or months.   

In a bear market or a bull market, momentum will generally carry stocks for a long period of time in one direction only, thereby ensuring that the best strategy will be to trade on the basis of the longer-term directional trend.

  The swing trader, therefore, is best positioned when markets are going nowhere - when indices rise for a couple of days and then decline for the next few days, only to repeat the same general pattern again and again. A couple of months might pass with major stocks and indices roughly the same as their original levels, but the swing trader has had many opportunities to catch the short terms movements up and down (sometimes within a channel).  

In the next article we will go a bit deeper and talk about Swing Trading and how it might come into play in different trading environments.

Frank Kneipher

FKPRINTS1@YAHOO.COM