Strategy for Swing Trading

[Nater]

Hello everyone,

I'm sorry if this question is on the wrong board, but it seemed to fit in a few different places. I figured here would be the best place given my "newbie" status.


I have been studying short time frame trading (1-5 days) and I have learned a good amount. But I am still uncertain on a very important aspect of actually trading this time frame, and that is: how should I go about predicting a movement?

I mean, it seems on such a short time frame that a company's finances wouldn't matter much. Whether a company is actually a good company or not wouldn't matter, as long as you weren't investing in it right? But does this mean that my only indicator of future movement is based on technical analysis with an eye on news events?

Lets say for example I wanted to place a trade on a company on Monday, and hope to be out of the trade by Friday. I've looked at the stock's charts, and my trade will be following the overall trend, various indicators will agree with my trade, candlesticks will show signs of reversal, etc. Does this mean I've exhausted all of my resources for judging whether or not my trade is acceptable? Or, would a technical analysis for this time frame be useless and a more fundamental approach be necessary? Like, should I only trade a stock if I know some news event will be coming out at a specific date (like a Quarterly Report) or if the company comes out with good or bad news?

I know this seems like a very broad and general question. I know that the answer may be, "If everyone knew this answer, everyone would be rich." But I really am having a hard time trying to come up with anything. Most of my trades (and only on paper, by the way) have seemed to be based more on speculation than on sound reasoning, but this is only because I don't know how much weight to give to each aspect of analysis.

I guess if this question seems a bit rambly and unfocused or unanswerable, I'm asking you guys what methods you use to determine a trade in a 1 to 5 day time frame?

 

[tomorton]

Swing trading has some advantages over daytrading but also some issues which mean it's not necessarily easier for everyone, it depends on what sort of personality you have and your availability to watch price movement in real time.

e.g. - I'm a planner, I don't feel comfortable with quick financial decisions, I like to have a plan of a trade from before I enter which identifies what I will do in the event of any (ANY) price movement after entry. I don't have timeto screenwatch continuously: when I do, I tend to trade tiny trades much too often and have a low win rate. I don't have time or expertise to analyse newsflow. I want a position to turn a profit within 10 days though my average hold is 3. All this makes me a swing trader.

But this approach has issues -
* you have to be able to sleep with open positions overnight and possibly over weekends
* positions are usually bigger than daytrades (again, must pass the 'sleep test')
* you commit to the plan, it dictates what you do, not tips or instinct or news
* open positions will often be hit be own or related newsflow: it might be best to avoid calendared expected news, price reaction is often just too unpredictable
* entry and exit points don't come too often so you may need an account that will support several open positions in parallel: this increases risk.

But the key danger is common to all trading - large losses through inability to accept small losses.

 

[Nater]

Swing trading has some advantages over daytrading but also some issues which mean it's not necessarily easier for everyone, it depends on what sort of personality you have and your availability to watch price movement in real time.

e.g. - I'm a planner, I don't feel comfortable with quick financial decisions, I like to have a plan of a trade from before I enter which identifies what I will do in the event of any (ANY) price movement after entry. I don't have timeto screenwatch continuously: when I do, I tend to trade tiny trades much too often and have a low win rate. I don't have time or expertise to analyse newsflow. I want a position to turn a profit within 10 days though my average hold is 3. All this makes me a swing trader.

But this approach has issues -
* you have to be able to sleep with open positions overnight and possibly over weekends
* positions are usually bigger than daytrades (again, must pass the 'sleep test')
* you commit to the plan, it dictates what you do, not tips or instinct or news
* open positions will often be hit be own or related newsflow: it might be best to avoid calendared expected news, price reaction is often just too unpredictable
* entry and exit points don't come too often so you may need an account that will support several open positions in parallel: this increases risk.

But the key danger is common to all trading - large losses through inability to accept small losses.

Thanks for the input. I've spent a lot of time trying out different styles and strategies, and I feel the most comfortable with this time frame. And I agree with everything you said. But, of course, I am still trying things out and I may find a different style suits me better later.

Is there any books or online resources (other than this forum, of course) that you could recommend for me to read on the subject?

 

[tomorton]

This forum is the best text source online that describes practice rather than theory, but abandon any how-to threads longer than 2 pages - at about this point they often develop into ego conflicts.

Look at regular YouTube videos by Oscar Carbone, InTheMoneyStocks.com and Alpha Trends (thermal1).

Really, there is no shortage of strategies that might work for you, and you can develop your own slants on these or start from scratch if you only have two facts to go on - prices in a trend tend to continue the trend rather than reverse it, but trends don't move in a straight line.

Whatever you do, making big money is not important, keeping losses small is vital.