Swing trading is a strategy that is focused on generating smaller gains in the short term trends and minimizing losses faster. While the gains may be smaller, when they are consistently earned as time passes, they will result in excellent annual returns. Usually, swing trading positions are held for a few days to a few weeks but may be held longer.
Developing a Swing Trading Strategy
Learning swing trading is possible with practice and by taking time to read this blog. However, getting to know some of the basics can also be beneficial.
Instead of targeting a profit range of 20% to 25%, which is standard for most stocks, the profit goal will be modest at just 10% and sometimes 5% for tougher markets. While the gains may not be life-changing like most of the rewards sought in the stock market, it is important to remember that time plays a significant role in swing trading.
A swing trader is focused on gains growing for weeks or even months. The average length of a trade is about five to 10 days. This lets a trader make many small wins, which will add up to larger overall returns. If someone is pleased with gains of 20% over the period of a month or more, then five to 10% gains each week or two will result in higher profits.
However, it is still necessary to factor in losses. The smaller gains will only produce growth in a person’s portfolio if the losses remain small. Rather than the typical seven to eight percent stop loss, the losses usually max out around two to three percent. This is going to help keep the trader at a three to one profit to loss ratio. This is a sound portfolio management rule to be successful.
Swing trading will provide bigger gains for individual trades. The stock may show plenty of initial strength that it can be held for larger gains or partial profits can be taken while giving space to run.
Align the Trade with the Direction of the Market
The market direction is best measured by the S&P 500. Make sure to find out about this before making a move. The trends will provide context for traders making short-term trading decisions. If a person only focuses on the short term, even if the trade is successful for a shorter period of time, the larger trends will likely reassert themselves. In this situation, profit potential is limited. This means it is necessary to identify the longer-term trends to ensure a person goes with the flow, rather than against it.
Building the Right Trading Strategy
When it comes to swing trading, building the right strategy is essential. Take some time to figure out what will work and be willing to change and alter it as needed. While swing trading may not make the huge profits quickly, it is worthwhile because it will help someone earn returns over time. This is a beneficial strategy.
If necessary, it is a good idea to work with the professionals. Take the time to learn the strategy and know what to do and what to avoid to ensure that the profits are made. Being informed and knowing what to do are the best ways to reduce losses and minimize issues.
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