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Thursday, July 12, 2012

Swing trading for dummies

I have already written a post on the subject and talked about this kind of trading strategy in many of my posts, but I still want to deal with it in this article. Swing trading is type of trading system when a trader keeps his position open from one day to a few weeks. Much depends on the momentum that a security gains from some piece of news or any other fundamental as well as technical factor(s). A lot of day traders ultimately become swing traders as they get disappointed with trading short term trading strategies such as scalping or similar ones. 

The key difference from any other day trading style is that a trader who uses swing trading system relies more on long term charts such as: daily, 8 hour, 4 hour and less often on 1 hour, 30 minutes or 15 minute charts. This, as you may understand allows him to avoid various ‘daily market noises’ that are bountiful and concentrate on a bigger picture. If you only look at what happens on this particular day you will never know what caused this or that big move in the market. Maybe some bank unloaded its’ huge position or some crazy piece of news caused traders to buy or sell some particular securities. 

In swing trading you want to catch a bigger move and capitalize on it as much as possible. It is very similar to trend trading and in some cases these terms absolutely coincide. However, trend trading refers to bigger moves than market swings and usually last longer. Some traders tend to call any tendency short or long term that is in the market to be a trend. They might be right to some extent, but then we should definitely distinguish between mega and micro trends, because trend traders would follow the former ones and day traders the latter ones. 

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Range trading can also involve various swing trading strategies. It is a broader concept as market swings usually happen within a certain market range. The best way to trade those is to enter a long trade at the bottom of the range and go with the full swing till the top of the range where you close your long order and reverse by taking a short order which you (possibly) keep till the bottom of the range. Of course, market never forms perfect swings, but I hope you understand what I mean. 

Hope the post was useful.

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Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.