Thursday, February 9

Simplicity Means Profit for Swing Traders

Have you been searching for techniques to ramp up your trading profits? If you prefer a medium-term timeframe, as most swing traders do, then there’s good news. That’s because some of the most effective swing trading strategies are the simplest ones.

It’s easy enough to find long lists of complex mathematical and technical approaches in textbooks and online discussion forums. But, what about the basic, no-frills, time-tested and proven methods that have been around for decades?

Those are there to focus on if you want to avoid the common pitfalls of this kind of investing. Whether you’re new to the game or have been involved in swing-type trading for years, here are several ways to keep it simple and get the most out of each position you enter.

Put a Stop on Bottom and Top

In centuries past, sailors used to have a saying for a red sky in morning sailor take warning. It held true in ancient times and is still used today because it works. A not so old but still very good rule for swing-traders is also in rhyme to put a stop on bottom and top.

What does it mean? When you get into a position, you should know exactly where you want to take profit and where you want to cut your losses. For instance, if you buy 100 shares of XYZ Corp. at $200, you might place stops at $240 for the gain and $180 for the loss. The basic concept is to set strict limits and abide by them on every trade you make.

Use Technical Analysis

The vast majority of medium-term trades, also called swings, are based on technical indicators. But that doesn’t mean fundamental analysis is ignored. In fact, some of the most experienced who take part in this type of trading use technical analysis as a first-tier screen and fundamental analysis as a second filter.

For example, if your technical analysis studies reveal that three companies, ABC, DEF, and GHI, are good candidates for a buy, consider doing extensive fundamental research to see which corporation is the most stable of the three. Together, technical and fundamental are a powerful mix of investing intelligence.

Find Resistance and Support Levels

One of the basic tenets of medium-term trading is being able to identify support and resistance levels. Fortunately, there are dozens of technical indicators that can help you do this. Additionally, you want to verify the accuracy of that technique by eyeballing the charts yourself and making sure that there are rather obvious S&R ranges, if not specific price points, before getting in.

Make a Written Plan

Come up with at least a half-dozen rules that guide you into or out of each position. Some have long lists of criteria for all their swings, which is one way of protecting your capital and avoiding major losses. The thing to remember about rules is that your emotions will often try to override them. Be wary of those urges to buy in when your own rules advise against doing so. Abide by the plan you write, and you’ll survive to trade another day.

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