Swing Trading is the best way for the average – and the soon to be better-than-average – trader to make good money trading stocks.
Think about it. What other method of trading allows you to spend a little time for a decent return?
It isn’t day trading. Day trading means opening and closing a position within a trading day, and that usually means parking yourself right in front of a computer all day.
Buy and holding investing doesn’t do it. We all know what has happened to those who have held on to some of the high tech high flying stocks.
What is “Swing Trading”?
Very simply, swing trading is a method of buying and selling stocks at the first sign of a change in direction. Preferably trading a stock that is moving strongly in one direction. If the stock moves in your favor, you hold the position as long as it continues in your favor until the stock signals another change in direction. If it doesn’t move as anticipated, then you exit with a small, well-defined loss (more about this later).
Of course, you need swing charts to swing trade. The following is an example showing the basic concepts of what a swing chart looks like. Ideally, you want to find a stock moving strongly in one direction. But this chart shows the concepts.
Swing highs and swing lows can be identified many ways. Like a lot of good trading, swings pivots can be identified simply by looking for a high or low that “sticks out”. What I mean by this is . a swing low is preceded and followed by at least two higher lows, a swing high is preceded and followed by at least two lower highs.
Take another look at the previous chart and notice where the swings change.
How to trade with Swing Charts
To make the most money from swing trading, you need to anticipate when a change in trend is occurring.
If you waited until two higher lows or two lower highs occurred after the swing before placing a trade, then you would often give up a lot of the profit potential.
There’s a better way to trade with swing charts though.
Once a stock has the necessary preceding bars, then trail the stock with a buy stop order above the previous (or current) bar’s high or use a sell stop order below the previous (or current) bar’s low.
Here’s what I mean.
Remember what I said about exiting with a small well defined loss if the stock goes in the wrong direction? Once you have taken a position in a stock, you place a protective stop above or below the recent high or low.
It seems so simple
That’s because swing trading is simple. As long as you wait for the stock to signal that there is a change in direction, you’ll keep your losses small and your winners big.
Of course, bigger profits go to those who know a pattern that signals when a stock is most likely to reverse. Read about one of our favorite swing trading patterns for locking in the biggest gains with the least amount of risk.
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*** Article by Dave Wooding of the Wooding Trading Company. Dave’s site includes useful stock market trading information. Visit https://www.woodingtrading.com for more FREE information about how the stock market works, trading tutorials and stock market education. If you would like to receive information on a regular basis, simply sign up at https://www.woodingtrading.com/stock-market-newsletter. html
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