Ten Simple Rules of Swing Trading

You can be a successful swing trader if you follow rules carefully.

You can be a successful swing trader if you follow rules carefully.

Swing trading -- buying and selling stocks to make a profit in several days or less -- can be an exhilarating way to play the market. You may have experience trading longer-term trends, but the action is much faster with swing trading. If you have no experience in swing trading, don't rush in. Set up a practice account with play money, and don't trade with real money until you can realize a good paper profit.

Cap Your Account

While you can make money in swing trading, you can lose it just as quickly. You may want to establish a separate account for this purpose. That way you can resist the temptation to trade with more money than you can afford to lose if your trades go the wrong way.

Look for Volatile Markets

To make successful swing trades, you need to find stocks that demonstrate wide short-term fluctuations -- the wider the range, the better. If the trading range is too narrow, your trades can't generate enough profit.

Be Consistent

Develop your plan, and stick to it. Like a baseball player in a slump who experiments with his stance and swing to no avail, you will find it much harder to get back in the groove if you experiment by changing your trading rules. Experiment in a practice account, not with real money.

Know the Market Phases

Even though you're not trading trends, you need to follow the general market trends to have a better feel for the direction and duration of your swings. If the market is bearish, the upswings may be weaker than they would be in a bull market.

Know Support and Resistance Levels

Support and resistance define the trading range, whether it's flat or trending up or down. If you follow the stock's movement in this range, you'll have little difficulty monitoring the swings the stock makes. You can also identify a breakout on the upside or a fallout on the bottom.

Know Your Entry and Exit Points

As part of the plan you developed while working with your practice account, you need to know the triggers that signal your buy and sell orders. You should be able to determine that the stock has began a bounce before you buy and that it has peaked before you sell.

Use Stop-Loss Orders

Always use stop-loss orders to protect your position. These orders to sell your stock if it drops in price should be set close beneath where you bought the stock and revised upward as the stock price rises.

Cut Your Losses

If the stock doesn't perform, cut your losses quickly. This frees up your money for another trade that may be a winner. At the end of the trading day, close losing positions. If you are uncertain about your position, close it out.

Take Your Profits

While it always makes sense to let your profits accumulate, remember that profits can evaporate quickly with swing trading. If the stock has good upward momentum, take half of your profit when the stock approaches the resistance level, and place your stop-loss order tightly behind the remaining position.

Don't Take Chances

In the long run, you'll make money if you follow your plan. Don’t gamble. Don't take chances. You'll have some losing trades, but your winners should more than compensate for them. If you deviate from your plan, your odds of winning go down.


About the Author

Thomas Metcalf has worked as an economist, stockbroker and technology salesman. A writer since 1997, he has written a monthly column for "Life Association News," authored several books and contributed to national publications such as the History Channel's "HISTORY Magazine." Metcalf holds a master's degree in economics from Tufts University.

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