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Swing Trading How to Profit from Swing Trading?

By Charles Hopkins Published 03/13/2006 | Finance

Swing trading is a trading strategy where you hold stock positions for a short duration of time, but longer than a day trade. Swing trade positions can last anywhere from 2 to 30 days, and generally try to take advantage of short and mid-term movements in stock prices.

This is also quite risky though may seem to be less so than day trading. Since it is not even mid-term and you dont wait for long a time, it is possible that that stock falls as you wait and as you come to the pre-fixed end of your target holding period, you have to sell at a trough. It is also possible that the stock makes a turnaround immediately after you exit, and you either narrowly miss a huge profit or avoid a withering loss.

Before going in for swing trading, one needs to understand the difference between swings and stock market cycles.

A cycle is longer than a swing. A cycle is made of many short swings, up and down. There are swing trading firms making lucrative promises and publishing tall advertisements. Watch out or you may get into some disastrous mistake.

The general principle for winning is the same for all stock market entrants: sell the losers and let the winners ride! Longer term investors make profits by selling their appreciated investments, but they hold on to stocks that have declined, hoping for a rebound. Swing traders often do not have that long a time to get into rebound. They have to infer accurately when it is time to give up a stock within their projected time range.

A personal policy to sell after a stock has increased by a certain pre-fixed multiple often pays off in swing trading. But that way it may never fully ride out a winner. Therefore it is wise to allow for some degree of flexibility within this swing trading period.

It is best not to underestimate a well performing stock by sticking to some rigid personal rule. If you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. Hence before entering this type of trading, do extensive research on the behavior of your selected sample of good stocks.

On the other hand, it's equally important to be realistic about investments that are performing badly. That a stock will bounce back after a lingering decline can never be guaranteed. Hence the best time to sell has to be chosen wisely also, and the wisdom has to be carefully based on research. A standard strategy is to wait till the upswing goes on within the period you remain in the market, and then sell at the end of your chosen end time.

Being an active investor involves knowing the in-s and out-s of buying and selling stock. But for becoming a successful swing trader, there is no substitute to working hard watching and analyzing your personal portfolio. In order to obtain the gains and rewards from swing trading, you need to master the science of timing.