Getting started in swing trading

[Shlarin]

Hi,

I've currently opened an account with Zecco and deposited a few thousand dollars (a amount of money I can afford to lose.) This is mostly to Please critique my preliminary strategy:

- I'm sticking with swing trading since I do not have the $25,000 required by the SEC for daytrading (although I've heard I can make up to 3 day trades a week.)

- With the small amount of money in my account, I don't think a direct-access broker or a real-time quoting service would be worth the money. I'll rely on MSN's free 1000 or so real-time quotes a month.

- I get 10 free trades a month and $4.50 per trade afterwards. Even with these low costs, the transaction costs will eat into my profit margins significantly if I overtrade. This means I cannot day/swing trade too many stocks at once. To diversify my holdings, I'll mostly deal with ETFs and Indices (e.g. SPDRs).. (this also minimizes the number of graphs I'll have to monitor simultaneously.)

- I might also consider swing trading individual stocks of undervalued companies with strong balance sheets (those that a value investor might like.) While the prices could vary greatly on a daily basis, the overall trend should be upwards for these companies so the odds are (slightly) in my favor.

What do you think?

 

[Rhody Trader]

It's a start. I don't see in there anything speaking to your well defined plan for knowing when to buy and sell, though. You do have one, right? If not, the rest of it is all meaningless. Well, all except for your choice of timeframes as that will play into your decision how to select your trade candidates. I also don't see anything about risk in there.

 

[Shlarin]

As for my strategy, I check CNBC and other major finance news the evening before and assess the performance of the markets in Asia (since China and Japan are major trading partners of the US; major changes in their equity markets tend to affect us.) Of course, the correlation isn't completely perfect but it's not completely random either.

If sentiment is bullish, I'll buy the SPY and ETFs in the most bullish sectors and/or commodities. If sentiment is bearish, I'll buy short ETFs (as opposed to outright shorting.) Once the short-term sentiment changes in the near future, I'll sell the corresponding ETFs.

I'm somewhat skeptical of technical analysis but then again, most of the people who denounce it do not day or swing trade (e.g. Warren Buffett, some finance professors, etc.) I might consider learning some basic charting along the way.

 

[Rhody Trader]

Have you actually tested out or demo/paper traded this strategy?

 

[fifty2aces]

I'm somewhat skeptical of technical analysis but then again, most of the people who denounce it do not day or swing trade (e.g. Warren Buffett, some finance professors, etc.) I might consider learning some basic charting along the way.

Some people might argue that what you're doing is a form of technical analysis - essentially trend following, but getting signals from Asia to enter trades in the US.

As Rhody suggested, this strategy should at least be tested by demo trading it. Ideally, try to come up with some objective entry/exit/risk management criteria which could be backtested. For example, if Asian markets are up >1.5%, go long, if they're down >1.5% go short, and if they're in between, go to the golf course. Code it up, run it over some historical data, and see how much money you'd make or lose.

If backtesting is successful, papertrade the strategy for a while to see if results conform to expectations, then think about real money.