A style of trading that attempts to capture gains in a stock within one to four days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren't interested in the fundamental or intrinsic value of stocks, but rather in their price trends and patterns. A swing trading position is typically held longer than a day, but shorter than trend following trades or buy and hold investment strategies that can be held for weeks or months. Profits can be sought by engaging in either Long or Short trading.
What one Needs to become a Swing Trader?
There are two types of Swing traders in the market. The first type will be successful, making money regularly from the markets, while the second type will consistently lose money until they finally give up on trading. The problem with this business is that majority of traders will fall in the latter category. This brings us to the dilemma of understanding what it requires to be a Swing trader. I would not like to repeat things on money management and psychology and hence instead of writing a lot, I will summarize by writing a few points about it. In my opinion, the most important aspects of being a Swing trader are,
Responsibility of trades
Being an Optimist
Understanding of Risk
Willingness to Succeed
My Five Commandments to become a successful Swing trader
1. Cut Losses Short - No matter who says what, if a trade is going against you, cut your losses and sit back.
2. Managing Targets & Stop Losses - Always protect your swing profits by shifting your trailing profit on the upside. Revise your targets depending on market situations.
3. Trade the trend - Always trade in the direction of the long term trend. Do not take a trade opposite to the trend.
4. Records - Keep detailed record of every trade and analyze your mistakes on a weekly basis. No matter what stage you reach, learning and improving never ends.
5. Never Average down - Never ever average on the downside. Always average on the upside.
Other Requirements - Usually ignored by many
1. Lowest commissions possible along with the best service one can bargain for.
2. Opting for brokers who provide a Desktop based trading application. Web based applications are slow.
3. Sufficient trading capital to start with. Anything less than 5 Lacs in my opinion is difficult to make a living from.
4. Reliable Internet connection with backup, installed on a high end Desktop/Laptop
5. Using appropriate softwares for Technicals. Web based softwares are just not good to analyze.
6. Making sure that Data is clean and Accurate. Data from some free sites are full of errors and are unvalidated.
In the next section we will start off with the method of identifying Swing trades.