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Buying and selling stocks to make a profit within a few days or weeks is called swing trading. It’s a solid way to play the market by following short-term trends rather than long-term investment strategy. Before you begin swing trading with real money, set up a paper money account so you can learn the ropes. You don’t want to risk real money until you’re comfortable with the concept of focusing on short-term gains.
Give Yourself Limits
When you’re finally ready to dive in with real money, it would be wise to set up a separate account for this purpose. Maintaining separate accounts helps you resist the temptation to swing trade more money than your risk management strategy allows.
Volatile Markets Are Good
While volatile markets are typically bad for traders focusing on long-term profits, swing traders relish them. The wider range the better when it comes to swing trading a stock. Swing trading isn’t possible if the trading range between prices is too narrow to generate profit.
Consistent Trading Is Key
Swing trading successfully requires a consistent trading strategy. Always limit your experimentation in strategy to your practice account and stick to your tried and true strategy with real money. Your established strategy shouldn’t graduate to your real money strategy until you’re making money with your practice account.
Markets Operate in Phases
Swing traders always operate on market trends, but you should understand that the market itself follows its own pattern. Your swing trades should be complementary to the general market sentiment. Keep in mind that any upswings you may want to ride will not be as high as a bull market if the general sentiment is bearish.
Support and Resistance
Support and resistance help establish the day’s trading range so you can find trends to trade. Following these can help you identify breakout stocks that are trending upwards or fallouts that are on their way to the bottom and ripe for shorting.
Entry and Exit Points Are Mandatory
Part of establishing a successful swing trading strategy is having your entry and exit point established before you enter the trade. Also, know what stocks to watch. You should be prepped and have these ready to go, locked in to your practice account as a test before going live in real time.
Cut Your Losses
No matter how carefully you trade as a swing trader, you’re bound to find yourself upside down at one point or another. Be prepared to cut your losses if you find yourself heading too deep in the red for the day. Any uncertainty about your position should be a signal that you need to close your position and try again another day.
Take Your Profits
Swing trading can be uncertain, so be ready to take your profits as soon as your exit point is reached. Taking half your profit at the intended resistance level will cover your investment. Your stop-loss order should be placed tightly behind that number so you can quickly cash out at the price point should the stock tumble too far with the other half.
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Brought to you by Justin Weinger.
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