Basics of swing trading
Many traders for some reason think that swing trading is very similar to day trading. But day trading is actually a lot more complicated, it requires a lot more time, and a lot more effort. Day trading requires you to sit at your computer all day long watching the markets. Swing trading is a lot more relaxed and done a lot more leisurely. It is less intense and generally has less capital requirements than day trading.
Swing trading is different from day trading. When swing traders trade, they leave their trades running for more than one day or even a month or more. Swing trading is a short to interim term trend-following trading technique. It is involving trends only, and it’s the swings of the markets that are referred to in the term Swing Trading.
Generally swing traders look for minor trend reversals to enter trades in the direction of the main trend.
For example in a main uptrend swing traders will enter on the minor pullback. This is done in anticipation that the price will continue back to the uptrend. In other words and they buy on dips or they sell on Peaks.
A swing trader take advantage of the “ease” in the market, when the buyers in an uptrend – the institutions, the “big money” – just take a breath and let the price ease down a little bit.
As a swing trader you would enter the market at that bottom of the pullback – when the price is going down in a uptrend. At some point the sellers get exhausted. They get tired out and they take a breath. And that is when the price will recover, and continue its uptrend. A swing trader trading a down trend would enter, when it peaked up to take advantage of that little movement against the trend.
Successful swing traders are anticipating that the asset, whether it’s a stock or currency, will continue overall for the next day or week in the same direction in which it’s been going. So when it peaks and starts to go down, they know it’s going to go back to a price level where it was trading earlier, and they’ll buy it there.
Successful traders watch how the price in a strong uptrend reverses for a short while. With Point and Figure, traders can easily see these as reversal patterns in the P&F charts. Often, in a very strong up trend, the price will reverse for a few price points, and then continue its uptrend. The P&F reversal is the best time to enter trades in an uptrend. The picture illustrates this simple Point and Figure pattern. The trader will enter here, and then let it run. Let it continue its uptrend. The risk is minimized by placing a stop loss below the lowest O. That is how to make money swing trading.