Swing Trading combines fundamental and technical analysis to find significant price changes while avoiding idle times.The benefits of Swing Trading are a more powerful use of capital and higher returns. The disadvantages are higher commissions and possible volatility. Swing trading requires skills. The professional traders havemore experience, leverage, information and lower commissions; however, they are limited by the instruments they are allowed to trade, the risk they are capable of taking on and their large amount of capital. Knowledgeable forex traders can take advantage of these things in order to profit consistently
Pre-Market The retail swing trader will often begin his or her day at 6am EST, well before the opening bell. This time is vital for getting an overall impression of the current market, finding possible trades, creating a daily watch list and, checking up on current positions.
Market Overview The first step is to find the latest news and progress in the markets. The best way to do this is via the cable television channels such as CNBC or trustworthy websites such as Market Watch. The trader focuses on three things in particular:
Find Potential Trades Next, the trader scans for possible trades for the day. Usually swing traders enter a position with the so called fundamental catalyst and manage or exit the position with the aid of technical analysis. Below are two good ways to find the fundamental catalysts:
Special opportunities These are best found via SEC(Securities and Exchange Commission) filings and, in some cases, headline news. Such opportunities may include initial public offerings (IPOs), bankruptcies, insider buying, buyouts, takeovers, mergers, restructurings, acquisitions and other similar events. Typically, these are found by monitoring certain SEC filings, such as S-4 and 13D. This can be easily done with the help of sites such as SECFilings.com, which will send notifications as soon as such a filing is made.
The opportunities above are often associated with a large amount of risk, but they also offer rewards to those who carefully analyze them. These types of plays involve the swing trader buying when most are selling and selling when everyone else is buying, in an attempt to "fade" over-reactions to news and events.
Sector plays: These are best found by analyzing news or consulting reputable financial information websites to find out which sectors are performing well. For example, you can tell that the energy sector is hot simply by checking a popular energy exchange-traded fund (like IYE) or scanning the news for mentions of the energy sector. Traders looking for higher risk and higher returns may choose to seek out more obscure sectors, such as coal or titanium. These are often much harder to analyze, but they can yield much greater returns. These types of plays involve the swing trader buying into trends at opportune times and riding the trends until there are signs of reversal or retracement.
Chart breaks are a third type of analysis available to swing traders. It is usually about heavily traded stocks that are near a key support or resistance level. Swing traders look for different types of patterns (see our collection of forex patterns) designed to predict breakouts or breakdowns, such as triangles, channels, Fibonacci levels etc. Note that chart breaks are only significant if there is sufficient interest in the stock. The strategy of the swing trader ism buying after a breakout and selling at the next resistance level.
Watch List The next important step is to generate a watch list of pairs for the day. These are simply pairs that have a fundamental catalyst and a shot at being a good trade. Some swing traders like to keep a dry-erase board next to their trading stations with a categorized list of opportunities, entry prices, target prices and stop-loss prices.
Existing Positions Finally, in the pre-market hours, the trader checks the existing positions. He or she makes sure that nothing significant has happened overnight. This is done by simply typing the pair symbol into a news service such as Google News. If there is material information, you have to analyze it and determine whether it affects your current trading plan.
Market Hours The market hours are a time for watching and trading. Many swing traders look at level II quotes, which will show who is buying and selling and what amounts they are trading. Those coming from the world of day trading will also often check which market maker is making the trades (this can cue traders in to who is behind the market maker's trades), and also be aware of head-fake bids and asks placed just to confuse retail traders.patterns
As soon as a viable trade has been found and entered, traders begin to look for an exit. This is typically done using technical analysis. Many swing traders like to use Fibonacci extensions, simple resistance levels or price by volume. Ideally, this is done before the trade has even been placed, but a lot will often depend on the day's trading. Moreover, adjustments may need to be made later, depending on future trading. As a general rule, however, you should never adjust a position to take on morerisk (e.g., move a stop-loss down): only adjust profit-taking levels if trading continues to look bullish, or adjust stop-loss levels upward to lock in profits.
After-Hours Market The vital element of after-hours trading is performance evaluation. It is important to carefully record all trades and ideas. Performance evaluation involves looking over all of your trading and identifying components that need improvement. Finally, you should analyze your open positions, paying particular attention to after-hours earnings announcements, or other material events that may impact your holdings.
Summary The swing trading is a combination of technical and fundamental analysis. In general, it requires more knowledge and more with the reference to, aay, scalping. The pre-market routine is paramount to successful swing trading. This is the time when trading opportunities are located and the day is planned. Market hours are simply a time of entering and exiting positions, not devising any new plans. And finally, after hours is just a time to review the trades for the day and assess performance. Adopting a daily trading routine such as this one can help you improve your trading and ultimately beat market returns.