The Basics Of Swing Trading

If you don’t have the stomach for short, intraday trades, but want to still try to time the market and capture short-term price movements, then swing trading may be the strategy for you.

Swing trading stocks entails using technical analysis to either go long or short a stock anywhere from overnight to several weeks or months out. Just like day trading, swing trading involves technical analysis, as most swing traders do little in the way of fundamental analysis.

Swing trading involves realizing a stock will make a move either before it makes it, or just as it’s starting to. Just like day traders, swing traders must have quick trigger fingers and be willing to trade without second guessing themselves. Your trades should be automatic.

With swing trading, it’s less about making a home run longshot trade as it is identifying a trend using your preferred technical indicators, confirming the trend with a different indicator or two, and setting responsible stops and exit points. So be sure you have a good handle on your charts.

A common way to find stocks that could make for a swing trade is to look for upcoming catalysts, especially scheduled events such as earnings reports, regulatory events, or economic data points. Because these events are known ahead of time and occur on a regular basis every month or quarter, swing traders will often keep track of them and play a stock heading into and out of the catalyst.

For example, the monthly US auto sales report comes out on the first Tuesday of every month. The strength or weakness of this number could make for opportunities in stocks like General Motors Company (NYSE:GM), Ford Motor Company (NYSE:GM) and Fiat Chrysler Automobiles NV (NYSE:FCAU).

As a swing trader, you should love volatility. A prolonged uptrend or downtrend is essentially a doomsday for swing trading (after all, why get out of a position if it’s clearly in a prolonged rally?), but back-and-forth whipsaw action gives you a reason to want to get out before some of your gains are erased.

One of the great things about swing trading is it requires less time and energy than day trading; it’s sort of the happy medium between that and long-term investing. But if holding positions overnight freaks you out — maybe you don’t like the unpredictability of the after hours and premarket sessions — then swing trading may not be for you.