Swing Trading Market Trends
Swing trading is a primary strategy used by day traders
. The portfolio of a swing trader consists of extremely short term investments, those usually lasting a little longer than one single trading session.
Swing trading basics include finding trades that are expected to experience large fluctuations in price over a very short period of time. The majority of swing traders attempt to identify momentum and market trends using price data and indicators. Such securities tend to be those with high volatility, and are generally cyclical assets.
Swing trading targets are usually stocks, indices, or commodities that are big movers, approaching support levels or resistance levels, are trading in an identifiable pattern, or are about to be affected by important news, such as earnings or a court decision.
These targets are mostly found through technical analysis and the various techniques, methods, and strategies that capitalize on finding patterns in security prices. Candlesticks, moving averages, MACD, stochastics, relative strength index, and Fibonacci extensions are a few of the indicators used in a swing trader's system. Such a trader's buy/sell decisions rely heavily upon technical analysis to provide exact entry points and exit points.
Capital management is an important factor in the trading process. Swing traders attempt to generate profits consistently via multiple short-term trades that seek to capitalize on a small investor's ability to transition from one trade to another.
A successful swing trader should become accustomed to the trends of individual securities and the flow of the broad market. There is no hard and fast rule for what to look in picking stocks or other assets to trade, or how much return traders should expect on each trade.
One of the most common tactics used by swing traders is sector rotation. The business cycle tends to create opportunities in the market at various stages by pushing a certain sector or sectors to the leadership position. For example, during inflationary periods, energy and material sectors will normally outperform the rest of the market. In recessionary periods, consumer staples, health care, and utility stocks are considered more defensive investments and will tend to outperform more cyclically sensitive sectors.
Traders incorporate sector rotation into their strategies, moving with the herd sentiment by following market leadership and taking small profits from larger trends. Sector rotation can be a part of larger method of valuing individual securities and determining if they make for good short-term trading candidates.
Although technical analysis is normally the primary tool used by day traders, fundamental analysts may also execute short term swing trades centered on significant news events that affect a company; the most common type of which is a company's quarterly earnings report. Many fundamental analysts will review the performance of a company over a specified period of time, estimate sales, expenses, and other operational items, and come to a earnings forecast from which they will base the value of underlying stock. Some traders use these estimates to buy or sell stock in anticipation that when the company actually reports earnings, they will be able to capitalize on a large price move. This type of analysis cannot be executed as quickly as technical analysis, but the intent is the same for executing short term trades.
Risks inherent in trading are amplified for short-term traders because losses must be dealt with more often than for buy and hold investments. Risk control can be executed by actively monitoring trades and making adjustments as needed. More sophisticated traders use market sentiment and technical analysis tools to maintain adequate stop losses. The ability to manage the emotional component, specifically dealing with setbacks, is a key factor in determining whether a new trader will be successful.
by: Matt kaldor
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