Swing Trading Strategies That Profit

Swing trading can be one of the most profitable types of trading or investing strategies for all types of market participants.  Basically it’s a style of trading where the objective is to capture profits over a one to several day period of time.

Those that swing trade are more likely to utilize technical or momentum analysis rather than any fundamentals for the stock, industry or overall market.

Have A Plan, Then Work The Plan

There are countless strategies and methodologies that have been adopted by traders over the years, but only a select few truly posses the ability to earn a consistent living trading the markets.

One of the most important things to consider, other than money to trade with of course, is having a strategy or system by which you trade.  If you trade by trial and error, there will be more errors which will soon lead to the end of the trial.  For example, you may be experimenting with different trading methodologies or technical indicators to see what works best for you.  That’s fine, as long as you do it in a test account or on paper before going prime time.

Anytime you either trade of make an investment, you must consider your trading capital as your army of soldiers that you are obligated to protect.  You send them out to battle in the financial markets each and every day with the objective of taking prisoners back to camp (you’re account).  With that said, each time you buy a stock or other investment, not only do you need a trading plan that can lead to profit, but you need a risk management plan that will protect you in the event you’re wrong.

 What Indicators Should You Use?

I can’t tell you what to do or what technical indicators to use, but I can tell you what I use and some of the reasons why.

Early in my career I was fortunate enough to learn the most invaluable lessons about the market you could ever imagine.  They boil down to:

  • Understanding how to identify certain trading patterns that constantly repeat throughout all market.
  • Understanding the time relationships that exist to form these patterns
  • Understanding how to calculate the price that should be achieved as these patterns materialize.

Once I was able to master these tactics, they became the basic foundation of how to identify every single trade or investment from that point forward.

The Pattern

There are many different patterns identified by analysts all the time.  Some work much better than others, and some are simply just made up from thin air.  There are a few tried and true ones that I use on a consistent basis.  Of course, identifying any of these is only the first step toward evaluating a trade.

  • Bear Flag
  • Bull Flag
  • Rising Wedge
  • Falling Wedge
  • Head & Shoulders
  • Three Bar Surge

Just to put a visual on the topic, here is an example of a sensationalized look at the chart pattern:

bull flag pattern

Time relationships

This one is more of an art form than a science.  There are many different ways to figure time relationships as the market trades, but one thing is a constant, they exist.

The majority of time, I use two methods that have shown high probabilities of success when used in conjunction with pattern analysis and price levels.

Mainly for longer time frames such as weeks, months or even years I’ve found cycle analysis to be quite accurate, as such quite amazing.

Take a look at a few longer term cycles that have data verification dating back hundreds of years.

stock market cycles

Every stock, bond, currency, ETF, precious metal, etc… have their own short and long term cycles.  Being able to find the repeating cycles of a stock or market is half science and half art form.

Price Discovery

This is the most important and most difficult part of the equation.  Remember, our minds play cruel tricks on our psyche.  It’s very easy to analyze a stock and come up with a price level to buy or sell a stock using our own formula.  The challenge realizing at what point were you wrong and where to cut your losses.  Risk management.

However, there are two primary pricing methods I use to determine where to buy and sell any market.

The first is to draw trend lines on a historical chart based on high and low pivot points.  This method is used to identify support and resistance.  While this seems like a simple and elementary explanation of a complex subject, it’s because it is.  You can make charting much more difficult than it actually is.  There are dozens of indicators you can use to dress up your charts, but most are useless and only work in text book scenarios.

Here is an example of a chart using trend lines, the way I use them.

spytrendlines

As you can see from the horizontal lines across the chart, I’ve identified areas of support.  How these are determined for purposes of this illustration is simply selecting former pivot highs or lows, including one area found around the 157 level that is known as gap window.  This is the area that would act as resistance from the point in which that day the stock gaped upward presumably on some positive news early in the morning.

While the trend lines found on the chart above are very real, and very important in terms of how the market will trade once it’s gets there, they can be refined even further by mathematical calculations such as Fibonacci numbers and various other methods to arrive at the most probabilistic outcome allowing us to profit handsomely.