Swing Trading Stocks: The Ultimate Guide to Reducing Risk
GPSM | Will Bell | October 25th, 2023
If you’ve traded at all in the online markets you’ve no doubt hit the buy button on a stock only to see the market constantly goes downhill from there.
Without a doubt, there were times you wish your trade would end sooner rather than later because you despise having to see your profit and loss statement fluctuate.
You might want to look at Swing Trading as a discipline to add to your stock market arsenal just because it works so well.
Hey, I'm Will, and today I want to show you how Swing Trading works.
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In this training article, I’m going to teach you how to Swing Trade Stocks Online - as well as 3 effective Swing Trading Tactics that you should be using this year.
Okay guys, let's get started...
Swing Trading Fundamentals:
What is The Bright Idea Behind Swing Trading, and How Does It Work?
One of the most popular trading methodologies is Swing Trading, which aims to capture a trade execution in just one swing (sometimes known as "1 move").
The goal is to experience as little "pain" as possible by leaving your deals before the opposing pressure (Bullish or Bearish) begins to build.
In other words, you'll take your earnings before the market reverses and wipes-out profits.
This is done over a period of time from 2 days to 2 weeks.
Ex.
Some advantages and disadvantages of using the swing trading discipline -
Pros:
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Since it's possible for your transactions to run for days or even weeks you won't have to sit in front of your computer for long periods of time.
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When opposed to day trading, there is less stress and minimal risk.
Cons:
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You won't be able to keep up with the latest Trading Trends.
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You are exposed to nightly risks also called "Night Attacks".
Strategy #1: Stuck In A Box:
Swing trading strategies have "titles" associated with them in order to assist you in better understanding the trade setup.
This makes it much easier to remember when you’re in expected profitable market activities.
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Okay, Guys, I’m Going To Introduce You To The First Swing Trading Method...
Stuck in a Box is Swing Trading in a range market due to the fact that the market is “stuck” in-between Support and Resistance (in an imagined box).
The way it works is as follows:
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Find a Range Market
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Wait until the price action breaks below Support
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Once the price breaks below Support, then wait for a strong price rejection (a close above Support)
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If there’s price rejection, then go long on the next candle open
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Set your stop loss 1 (ATR) Average True Range below the candle's low and take profits prior to Resistance
Check This Out Below:
You might be wondering what to do next and what’s the benefit of taking gains before Resistance?
Think back…
To be a swing trader, you have to wait for the market to make "one move."
So, in order to maximize your chances of success, you need exit your transactions before the selling pressure kicks in (which is at Resistance).
Trust me guys, don't overthink this...
Fortunately, we will be applying this approach to the remaining swing trading techniques in the near future.
Next…
Strategy #2: Catch The Wave
Taking advantage of "one trading move" in a trending market is the goal of this swing trading approach (like a surfer trying to catch the wave).
After the pullback has been completed, it is best trading practice to enter the market when the trend is expected to continue.
However… This is not applicable to all types of market trends.
Instead, you want to trade trends that have had a more significant pullback since there is more "money" on the positive side of the market.
As a smart guideline, you want to see a pullback at least around the 50-period moving average (MA) or deeper.
Here’s How To Profit From This Swing Trading Approach.
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Identify a trend that is trending the 50 Day (MA)
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When the market approaches the 50 Day Moving Average, wait for a bullish price rejection
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If there’s a bullish price rejection, then focus to go long on the next candle
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Set your stop-loss price 1 ATR below the low and grab your profits just before the swing high
Ex.
At this point you’re thinking what the significance of the 50-period moving average?"
It’s prudent to use the 50-day moving average because it is closely observed by traders all over the world. It has the potential to self-fulfill since so many traders are using this oscillator.
Furthermore, the 50 Day (MA) frequently coincides with earlier Resistance that has converted into Support, making it much more noteworthy.
It doesn't mean that you can't use a Moving Average of 60, 67, 89, or any other number range. The wisdom behind the Herd of Investors is what's important.
Strategy #3: Fade The Move
I made $1,100 in 30-mins of trading this day and took the rest of the day off and went surfing.
True Story Check it out here.
Fading the move” means that a trader will wait for the move to the upside on the chart to stall and then they will “fade” that move.
In other words, they will open a trade in the opposite direction of the first move…
Essentially guys you are trading against the flow of the market (also known as counter-trend)... so, if you're the type of trader who enjoys "going against the grain," this trading method may be for you.
The way it works is as follows...
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Find a strong momentum move into Resistance that takes out the previous trading high
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Identify strong price rejection as the candle forms a strong bearish close
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Go short on the next price action and set your stop loss 1 ATR above the highs
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Take profits before the nearest swing low
Ex.
Okay, guys, so we’ve covered 3 different disciplines of swing trading methods that are super effective.
However, there is one vital point that has been left out...
Your Position Management.
When you enter a trade, what happens if the market does not hit your stop loss level? Or, it has not achieved the profit you had hoped for.
What should you do in this situation? Do hold... or exit the trade?
Understanding Trade Management will allow you to trade with confidence and conviction.Now, when it comes to trade management, there are two approaches you can take...
Trade Management That Is Passive Management or Active Management.
Fortunes are made by buying low and selling too soon. - Nathan Rothschild
1. Passive Trade Management is a type of trade management in which the trader does nothing.
For this approach, you'll either let the market hit your stop loss or your target profit. You'll basically do nothing if the market doesn't touch either of those levels.
The ideal situation is to place your stop loss away from the "noise" of the markets and have your goal profit within a fair distance of the market's "noise" (before key market structure).
Here are the advantages and disadvantages of doing so...
Pros:
As your decisions become more "automatic," trading becomes more relaxed for you.
Cons:
Even though the market is displaying signs of a reversal, you can’t exit your trade ahead of time.
It is possible to see a winning transaction turn into a complete loss.
2. Management that is Active
Here you'll need to pay attention to how the market reacts and then determine if you want to hold or exit the transaction.
Now, this is critically crucial...
For an Active approach to work for you managing your trades on your entry timeframe (or higher) is required.
It is important not to make the error of managing it on a shorter timeframe since Market Forces will emerge and you will scare yourself out of the trade with every price pullback that occurs.
Here Are The Advantages and Disadvantages Of Doing So...
Pros:
Instead of suffering major losses, you can reduce your losses to a minimum.
Cons:
A greater amount of stress comes. You could make the mistake of exiting your trade too soon and not giving it enough time to run.
If you believe that Active Trade Management is right for you, here are two techniques to consider:
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Moving Averages
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Previous bar High/Low
Moving Average
This technique involves trailing your stopping price by using a Moving Average indicator.
You’ll keep your position in the security if the price doesn’t break beyond the moving average.
If it does, then you’ll exit the trade.
Ex.
This type of trading technique is useful for Swing Trading strategies like Catch the Wave since the Moving Average tends to act as blatant Support & Resistance in trending markets.
Previous Bar High/Low
This trading technique relies on the previous charts' High/Low to trail your stop loss. In other words, if you’re short, you’ll trail your stop loss using the previous bar high.
If the market breaks and closes above it, then you’ll exit your position (and vice versa).
Here's what I'm talking about:
When using Swing Trading methods such as Fade the Move, this technique is very effective because the market can swiftly turn against you.
As a result, you don't want to give your trade too much breathing room and you want to liquidate your losses as soon as the market shows symptoms of turning around.
Let's Recap:
Swing Trading is -
The art of catching "one move" in the market by leaving your deals before the opposing pressure comes in to force the market to swing the other way.
Stuck in a Box
Is a Swing Trading method that is best suited for trading in range-bound markets.
Catch the Wave
Is a Swing Trading method that is best suited for markets that are trending.
Fade the Move
Is a Swing Trading method that works against the trend.
Passive Trade Management
Is less stressful, but you must be comfortable with the prospect of seeing your winners convert into a complete loss.
Active Trade Management
Is more difficult, it allows you to limit your losses.
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