Ten Simple Rules of Swing Trading

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.