Swing Trading
Swing Trading and the idea of it – A little deeper
By Frank Kneipher
Jun 28, 2007 - 9:13:19 AM

Swing Trading and the idea of it – A little deeper

Of course, the problem with both swing trading and long-term trend following  is that success is based on correctly identifying what type of market is currently being experienced. Looking back over the past few years, trend following  would have been the ideal strategy for the raging bull market of the last half of the 1990s, while swing trading probably would have been best for 2000 and 2001. With the 2002 bear market, the best strategy would have been to follow the trend and short everything in sight.  

So swing traders are not looking to hit the home-run with a single trade.   They are not concerned about perfect timing to buy a stock exactly at its bottom and sell exactly at its top. In a perfect trading environment, they wait for the stock to hit its baseline and confirm its direction before they make their moves. The story gets more complicated when a stronger up-trend or down-trend is happening.  The trader might go long when the stock jumps below its EMA and wait for the stock to go back up in an uptrend, or the trader might short a stock that has spiked above the EMA and wait for it to drop if the longer trend is down.

When it comes to taking profits, the swing trader will want to exit the trade as close as possible to the upper or lower channel line without being too cute or picky with an exit point, which may cause the risk of missing the best opportunity. In a strong market when a stock is exhibiting a strong directional trend, traders may want to wait for the channel line to be reached before taking their profit, but in a weaker market they may take their profits before the line is hit (in the event that the direction changes and the line does not get hit on that particular swing).

Swing trading is actually one of the best trading styles for the beginning trader to get his or her feet wet, but it still offers significant profit potential for intermediate and advanced traders. Swing traders receive sufficient feedback on their trades after a couple of days to keep them motivated. By contrast, trend following offers greater profit potential if a trader is able to catch a major market trend of weeks or months, On the other hand, trading dozens of stocks per day (day trading) may just prove too be too much pressure for some traders to manage, making swing trading the perfect medium between the extremes.

Frank Kneipher

FKPRINTS1@YAHOO.COM