| “Average investors who try to do a lot of trading will only make their brokers rich.” --Michael Jenson, Finance Professor, Harvard University "Buy on the cannons, sell on the trumpets." --Old French Proverb. |  |
We are all swing traders in the stock market. It’s just that not all of us are good at it. Some swing trade over a period of years while others swing trade over a period of hours or minutes, but they all do it in a very similar way. A swing trader's goal is to buy stock when it’s price is low and sell stock when it’s price is high. They use every advantage of technical analysis to find their particular edge for their style of trading. They swing in and out of stocks according to their own level of trading comfort.
Since swing traders make trading decisions based upon price, volume and a few of their favorite momentum indicators, and since these same indicators are independent of the time frame of the chart being used, swing traders at all levels of the trading spectrum are conducting their business similarly. The one thing most swing traders have in common is that once they become comfortable trading in one time frame they use the chart of one time frame lower to support their trading decisions. For example, a swing trader who is comfortable with executing trades on a monthly basis will generally use the weekly charts to make their decisions. Personally I like to trade weekly so I obtain most of my data from the daily charts to make my decisions. Those traders that feel comfortable trading on a daily basis will use hourly charts and intraday traders will use 15-minute or 1-minute charts. These last two examples of swing traders are generally referred to as day traders.
A successful swing trader enters a stock when it’s oversold and exits a stock when it’s overbought. He’d then short the stock when it’s overbought and cover his short once it becomes oversold. A true swing trader wouldn’t be able to trade an extensive list of stocks because the time required to concentrate on and monitor more than a select few volatile stocks would be overwhelming. Buying a stock and only checking on it’s earnings, profits and dividends every three months can only be done by an investor that swings over a period of years or decades and relies on the stock’s P/E ratio as his swing trigger. It’s not something a short term swing trader does and it’s definitely not what a day trader does. A swing trader only uses the information provided by price, volume and a couple of indicators to make his decisions.
I use many of the same ideas and methods that a swing trader uses when I’m buying and selling options. For the most part I’m swinging on a weekly basis when I’m buying and selling those options.The information I’m looking at is price, volume and a couple of indicators I like to use to make my trading decisions. The main difference is where a swing trader would go long by buying stock, I’d go long by selling puts. Where a swing trader would go short by selling or shorting stock, I’d sell covered calls on the positions I already own. The swing trader is always buying and selling equity while I’m always selling premium. The result is that in a fast moving market the swing trader may make more money than the options seller while in a flat market the option seller will make more money because of the deteriorating premium. I’ve learned over the years that there are vastly more flat markets than volatile markets so the probability of success is with the option seller.
For the most part and for the biggest part of my portfolio, I’m a buy and hold type of investor which is a swing trader with a trading time frame consisting of years or decades. I’d like to think of myself as a swing trader but the fact is that I spend so much time trying to decide which stock to buy that once I finally make the decision to purchase a stock it becomes hard for me to sell it as long as it continues to perform as I had originally expected. The price of the stock may become overbought or oversold at times but if revenue, profits and dividends continue to increase over time, I have a tendency to simply hold the stock and collect the dividends rather to buy and sell the stock and pay the taxes on the trades. This becomes even more important to me as I get older and dividends become more and more important in supporting my investments.
I never advise anyone about swing trading. I can only say what my intentions are and what I’m doing in the market. I’m old enough to understand that the excitement of short term swing trading is often addictive for the beginning trader but this short term trading often ends in disaster for many of them. Older traders know that the big gains are made over a period of years, not days. The traders that become really successful are the ones that are still trading decades after their first trade. They are the ones that understand the difference between trading for today and investing for the future.
Since swing traders make trading decisions based upon price, volume and a few of their favorite momentum indicators, and since these same indicators are independent of the time frame of the chart being used, swing traders at all levels of the trading spectrum are conducting their business similarly. The one thing most swing traders have in common is that once they become comfortable trading in one time frame they use the chart of one time frame lower to support their trading decisions. For example, a swing trader who is comfortable with executing trades on a monthly basis will generally use the weekly charts to make their decisions. Personally I like to trade weekly so I obtain most of my data from the daily charts to make my decisions. Those traders that feel comfortable trading on a daily basis will use hourly charts and intraday traders will use 15-minute or 1-minute charts. These last two examples of swing traders are generally referred to as day traders.
A successful swing trader enters a stock when it’s oversold and exits a stock when it’s overbought. He’d then short the stock when it’s overbought and cover his short once it becomes oversold. A true swing trader wouldn’t be able to trade an extensive list of stocks because the time required to concentrate on and monitor more than a select few volatile stocks would be overwhelming. Buying a stock and only checking on it’s earnings, profits and dividends every three months can only be done by an investor that swings over a period of years or decades and relies on the stock’s P/E ratio as his swing trigger. It’s not something a short term swing trader does and it’s definitely not what a day trader does. A swing trader only uses the information provided by price, volume and a couple of indicators to make his decisions.
I use many of the same ideas and methods that a swing trader uses when I’m buying and selling options. For the most part I’m swinging on a weekly basis when I’m buying and selling those options.The information I’m looking at is price, volume and a couple of indicators I like to use to make my trading decisions. The main difference is where a swing trader would go long by buying stock, I’d go long by selling puts. Where a swing trader would go short by selling or shorting stock, I’d sell covered calls on the positions I already own. The swing trader is always buying and selling equity while I’m always selling premium. The result is that in a fast moving market the swing trader may make more money than the options seller while in a flat market the option seller will make more money because of the deteriorating premium. I’ve learned over the years that there are vastly more flat markets than volatile markets so the probability of success is with the option seller.
For the most part and for the biggest part of my portfolio, I’m a buy and hold type of investor which is a swing trader with a trading time frame consisting of years or decades. I’d like to think of myself as a swing trader but the fact is that I spend so much time trying to decide which stock to buy that once I finally make the decision to purchase a stock it becomes hard for me to sell it as long as it continues to perform as I had originally expected. The price of the stock may become overbought or oversold at times but if revenue, profits and dividends continue to increase over time, I have a tendency to simply hold the stock and collect the dividends rather to buy and sell the stock and pay the taxes on the trades. This becomes even more important to me as I get older and dividends become more and more important in supporting my investments.
I never advise anyone about swing trading. I can only say what my intentions are and what I’m doing in the market. I’m old enough to understand that the excitement of short term swing trading is often addictive for the beginning trader but this short term trading often ends in disaster for many of them. Older traders know that the big gains are made over a period of years, not days. The traders that become really successful are the ones that are still trading decades after their first trade. They are the ones that understand the difference between trading for today and investing for the future.
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