How to Develop a Swing Trading Strategy
Any swing trading strategy should include two major components.
The first is an entry strategy and the second is an exit strategy.
Do not attempt swing trading or for that matter any other style of trading if you don't know what is going to cause you to enter a trade or what is going to get you out of a trade once you have entered.
There is a plethora of investment tip sheets and newsletters on the internet.
Unfortunately, many if not most of them are paid to advertise the stocks they recommend.
Instead of blindly following the recommendations of others you need to develop swing trading rules that will cause you to enter a trade.
This might be the stock moving across a moving average; it might be a divergence between the stock price and an indicator that you are following or it may be as simple as looking for support and resistance levels on the chart.
Most decisions that comprise an entry strategy or an exit strategy are based on technical analysis.
There should be certain triggers that initiate a trade.
You can use fundamental analysis to narrow down the field of stocks under consideration but you should enter the trade on the basis of technical analysis.
Likewise, you need an exit strategy as a part of your overall swing trading strategy.
This is essential.
An exit strategy does two things: it protects profits and protects you from large losses.
If you engage in trading you will have losses.
It is just the nature of the beast.
However, you can't allow those losses to eat up all of your profits.
You need to set very defined set of swing trading rules.
What is the maximum that you will allow yourself to lose on any one trade? What will cause you to turn sour on this particular trade? Will you close a certain portion of your trade when you make a specific return on your investment? If you used a moving average to enter a trade will you exit if it crosses to the other side once again? These questions and many others like them are questions you need to ask yourself when developing a trading strategy.
Spend time developing such a system.
You will be happy you did.
It just might save you a lot of money.
The first is an entry strategy and the second is an exit strategy.
Do not attempt swing trading or for that matter any other style of trading if you don't know what is going to cause you to enter a trade or what is going to get you out of a trade once you have entered.
There is a plethora of investment tip sheets and newsletters on the internet.
Unfortunately, many if not most of them are paid to advertise the stocks they recommend.
Instead of blindly following the recommendations of others you need to develop swing trading rules that will cause you to enter a trade.
This might be the stock moving across a moving average; it might be a divergence between the stock price and an indicator that you are following or it may be as simple as looking for support and resistance levels on the chart.
Most decisions that comprise an entry strategy or an exit strategy are based on technical analysis.
There should be certain triggers that initiate a trade.
You can use fundamental analysis to narrow down the field of stocks under consideration but you should enter the trade on the basis of technical analysis.
Likewise, you need an exit strategy as a part of your overall swing trading strategy.
This is essential.
An exit strategy does two things: it protects profits and protects you from large losses.
If you engage in trading you will have losses.
It is just the nature of the beast.
However, you can't allow those losses to eat up all of your profits.
You need to set very defined set of swing trading rules.
What is the maximum that you will allow yourself to lose on any one trade? What will cause you to turn sour on this particular trade? Will you close a certain portion of your trade when you make a specific return on your investment? If you used a moving average to enter a trade will you exit if it crosses to the other side once again? These questions and many others like them are questions you need to ask yourself when developing a trading strategy.
Spend time developing such a system.
You will be happy you did.
It just might save you a lot of money.