How to Formulate a Swing Trade Plan!
What do I need to know about Swing Trading?
Swing trading is a short to medium-term buy and hold strategy for a particular stock or asset. It is usually held for days, weeks, or a few months. It's also a great way to avoid the Pattern Day Trader rule (PDT) for those trading with U.S. accounts under $25,000.
Is Swing Trading Risky!
Like any other form of trading in the market, swing trading is risky. It is riskier because not all brokers offer full hours of trading. There is no control over your investment during that time. Holding stock or assets overnight is riskier since companies tend to put out PR (news) mostly pre-market and after-market hours. The news may sometimes be bad, and the stock can crash, causing traders to lose money since they have no access to the market due to their brokers' trading hours restrictions.
Why Should I Swing Trade?
Although swing trading is riskier, it can also be much more lucrative than day trading. Swing trades can gap up over 100% or higher. We have seen some swing trades gap up over 1,000% (such as SPI, for example). So the returns can be monumental if the trade is executed correctly.
How can I Swing Trade with Minimal Risk?
Great question! I recommend that all traders first understand position sizing (the amount of money/shares invested) for all swing trades. Traders should never invest their full account balance in one particular stock or asset. For example, if a trader has a $1,000 account balance, that trader should invest no more than 25% on a swing trade. This strategy will help with risk management and keep the account in good status. Of course, the bigger the account's balance, the smaller the percentage should be for swing trades. For this particular article, we'll focus on all traders who have smaller sized accounts.
What do I Look for in a Swing Trade?
First, traders need to identify the pattern. Is it an oversold, consolidating, or a continuation pattern? Secondly, support and resistance levels must be established to plan the trade and the overall potential return (potential return = percentage gain). A trader must look for a trade that will return a minimum profit of 10% or higher. After establishing support and resistance, a trader must plan the entry, profit targets, and stop loss.
How Long Should I Hold My Position?
It is crucial to adhere to your plan. A trader should execute the plan accordingly. If the profit targets are reached, a trader must lock in profits. Locking in profits can be done by scaling out (taking partial profits) or by selling all at once. On the other hand, if the price hits the stop-loss, a trader must cut losses immediately. The plan was a success in either scenario since the planned exits (profit targets and stop-loss) were executed according to plan.
Here is an Educational Video on How to Plan for Swing Trades.
**Free Educational Video Below** (Part of the Educational Video Course for PSC13 Elite Trades Members)
This video is for educational and entertainment purposes only!
Disclaimer: Results may not be typical and may vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk!