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Swing trading for a profit

Many investors and traders who are building their knowledge and experience with investing and trading will wonder whether to get into swing trading for a profit and just how profitable swing trading can be.

Swing trading

First, we need to define swing trading and how it differs from day trading, scalping, and position trading or investing. So here are some straightforward definitions:

Swing trading is trading when the price is moving in a range between levels of support and resistance. Swing traders tend to hold positions for a few days to a few weeks and use a mixture of fundamental and technical analysis to find trading opportunities.

Day trading involves looking for highly profitable price movements that happen within a single day, also called Intraday. Day traders typically study a number of stocks, currencies, or commodities using technical analysis and might trade one to a few positions in a day.

Scalp trading involves seeking to profit from many small price movements that happen within a few minutes up to an hour or more. Scalpers typically trade many times a day and are looking for small but probable price movements in one direction.

Position trading is really more akin to what many people understand as investing. Position traders tend to be more conservative and are likely to ride short and intermediate-term dips. Position traders will also usually only enter positions on the long side and will use a blend of fundamental analysis to find stocks and ETFs and technical analysis to time entry and exit points. A position trader will tend to hold positions from a few months to a few years.

Interestingly you will find some other looser definitions of swing trading where the only distinctions between day trading, swing trading, and longer-term trading are the time frames involved for which positions are held. But then if swing trading was only about how long you hold a position, it would just be called intermediate-term trading, so why the reference to swing?

The reason it is called swing trading is that when stock prices move within a range between support and resistance they tend to swing from one level to the other until such time as they breakthrough and a new range is established.

This article gives a definitive description of swing trading.

Momentum vs mean reversion

There are at least two hypotheses that seek to explain how market prices behave. The two I am referring to here are pretty much the opposite.

Mean reversion says that prices may get knocked off-kilter, either by getting themselves overbought or oversold but when that happens they will tend to revert back to a mean level somewhere in the middle of two extremes.

Momentum says that prices in motion, in other words moving in a particular direction whether up or down will tend to continue in that direction.

The swing trading approaches we are looking at here are aimed at spotting price patterns that are either reverting back to a mean if prices reverse back where they came from, or are heading off continuing in the same direction under the influence of momentum.

Just for interest, another hypothesis says that market prices follow a random walk with no discernible pattern.

Support becomes resistance and resistance becomes support

If support is broken through in a downward direction, then the level that was support becomes a new level of resistance. If resistance is broken in an upward direction, then the level that was resistance becomes a new level of support.

These are two interesting statements and you may hear this or read this in many books or articles on trading and investing, and it is useful to see how this happens.

Price hits support level

Let’s consider the point where the price has moved down and is hitting a level of support. There are a number of market players involved here deciding what to do next.

  1. Investors who are long in the stock
  2. Investors who are buying the stock at the support level
  3. Short-sellers who are opening short positions on the stock
  4. Other investors or traders who are watching the stock but have not yet taken a position

If the combined action of short-sellers and investors holding the stock who decide to sell at this level overcome the buying pressure from investors buying the stock, then the stock price will break through the support level.

Price breaks through support

What tends to happen at this point is that investors who were buying at the previous support level will have placed stop-loss sell orders that will be triggered. Investors who hold the stock may also decide to sell or may have stop-loss or trailing loss orders that get triggered. More short-sellers may also open short positions.

Investors and traders who are watching the stock may see what looks like a breakthrough and enter the market on the side of the downward trend.

For these reasons when a price support level is broken by more than a few percentage points, the price tends to continue down further.

The same happens when price resistance is broken. Short-sellers who had taken positions at or near the resistance level expecting that the price would drop from there will likely cover their short positions by buying back the stock. Traders will also enter long positions seeing that a level of resistance has been broken. So when price resistance is broken by a few percentage points, these buying pressures tend to push the price higher still.

Price breaks through resistance

An important thing to note is that much of this trading is being executed by computers programmed to trade at or within a few percentage points of the support and resistance levels. So there is some inevitability and momentum to these price movements.

As we noted before, what we observe is that a level that was price resistance, once broken becomes a level of support. Much of this is because traders who enter new positions place stop-loss orders very close to the levels where they entered.

Price resistance becomes support

Establishing trends

In seeking to understand how the price of a stock is behaving, we draw trend lines. If a price chart shows two significant price peaks then we can draw a line that becomes a tentative trend.

If the price returns to this line and bounces off it making a third peak, then we have a confirmed trend line.

Upper trendline

This principle of joining two significant peaks and then a third works whether the trend is up, down, or sideways. We can draw trend lines that join significant price troughs in the same way.

Lower trendline

Trending within a range

When we have a trend line joining peaks and a trend line joining troughs that are parallel, we say that the price is ranging in a trending channel. The trending channel can be upward downward or sideways.

Price channels

Trading volume is another indicator of how well support, resistance, and trend lines will hold. When you see higher volume at a level of price support that is an indicator that the support level is valid. The same holds true at a level of price resistance.

However, while it takes stronger volume to move the price up from a level of support, higher volume at a level of price resistance is less important. Prices can fall from a level of resistance without higher volume.

Trends within trends

One thing to notice if you zoom into a price chart to see shorter time frames you will see trends within trends. The same holds if you zoom out to a larger time frame. To illustrate this we can see in the chart below.

Price trends within trends

In this chart, the overall trend from A to D is up, and while A to B and C to D are up, however, B to C within A to D is a downward trend. So when defining whether a trend is up, down, or sideways it is necessary to define the time frame, whether that is minutes, hours, days, weeks, months, or years.

Trading within a range

Going back to our definition of swing trading, the idea was to trade within a range. There are different ways to trade within a trend.

An aggressive approach is to enter either a long position once a tentative level of price support has been identified and then exit that position when price resistance is reached.

A general principle is that if you are aggressive in position entry you should be aggressive in exiting positions as well. Trading within a channel that is only tentatively identified is likely to result in often being on the wrong side of the trade. So with this approach, tight stop-loss positions are well-advised. Here is an explanation about using stop-loss orders.

Trading within a price channel

A less aggressive approach is to enter positions only when a trending channel is established. It is still advised to use tight stop-loss orders because of the way price tends to behave around support and resistance levels. In simple terms, if you do happen to be on the wrong side of the trade, you should find out pretty quickly in which case it is best to exit quickly with tight stop-loss orders.

With this approach, you are at a greater risk of having missed the boat, and either the level of support breaks in a downward direction or price breaks through a level of resistance in the upward direction.

Price targets beyond a range

Another approach to trading uses the size of an established trending range to set a price objective once the price breaks out of the range.

There are a number of classic price patterns each with its own price breakout and standard way to estimate where the price will go after the breakout.

Price reversals

Starting with the classic reversal patterns there are the head and shoulders, the inverted head and shoulders, and the triple top and triple bottom. Here is the head and shoulders pattern.

Head and shoulders pattern

For the head and shoulders pattern, the neckline is drawn between the price lows on either side of the head. Then when the price comes down from the right shoulder and breaks through the extended neckline, the estimated price target is the distance from the peak of the head to the neckline extended below the breakout point.

The same works in reverse for the inverted head and shoulders pattern.

Inverted head and shoulders pattern

Because the inverted head and shoulders pattern is a prelude to a reversal of a downward trend to an upward trend, strong trading volume on the breakout is more important than for the head and shoulders.

The triple top and triple bottom are pretty much like a head and shoulders pattern with a lower head. The same principle applies to establishing estimated price targets.

Triple top and triple bottom patterns

Following the general principle of momentum and since it usually takes more to reverse a trend than it does to continue a trend, reversal patterns take time to develop. The longer they take and the larger they are in price terms the more probable it is that the price trend will indeed reverse.

Continuation patterns

While reversal patterns take time to develop and have an effect, and that can typically be months, price continuation patterns are more indicators that a price uptrend or downtrend is pausing and moving sideways for a while before resuming the previous trend. Continuation patterns may last a few weeks to a month while a reversal pattern often takes a few months to form.

The most common continuation patterns are triangles and wedges. There are three kinds of triangles, the symmetrical, the ascending, and the descending triangle.

Symmetrical descending and ascending triangles

The ascending triangle usually occurs on an uptrend and pauses the trend. As an ascending triangle, there is greater buying pressure pushing each successive price trough higher so it is an indicator of bullish price continuation. Similar considerations apply to a descending triangle which shows greater selling pressure push successive price peaks lower and so is an indicator of bearish price trend continuation.

A symmetrical triangle can appear in an uptrend or in a downtrend and indicates that buying and selling pressures are about equal so shows the likelihood of continuation of the previous price trend.

The principle difference between a wedge and a triangle is that a triangle is either symmetrical around a horizontal line or has one side as a horizontal line. With a wedge, however, neither side of the triangle is horizontal. A wedge has a general slant and the slant is usually counter to the direction of the trend.

Descending and ascending wedge patterns

So you will see a descending wedge in a price uptrend, and this is a bullish trend continuation indicator. In the same way, you will see an ascending wedge in a price downtrend and this is a bearish trend continuation indicator.

Breaking the triangle

A common feature observed with triangles is that the price breakout and continuation of the trend tend to happen around two-thirds of the way into the triangle. The point being once a triangle has run two-thirds you should expect that the pattern will be broken and the previous trend will resume.

There are different schools of thought on establishing a price target following a breakout from a triangle or a wedge. Once the triangle pattern has been broken we can expect the price to continue with the previous trend.

The conservative approach is to estimate a price target after the pattern is broken extending the same vertical distance as measured from the second price point to touch and bounce off one of the sides the vertical distance of the other side of the triangle. This is easier to see on a diagram than to explain in words.

Measuring a triangle pattern

After the price has reached the objective we can expect a correction or period of sideways movement. Either way, the price target is a good exit point. The same principle of finding a price objective can be applied to the other triangle and wedge patterns.

Triangle and wedge pattern price targets

Head and shoulders again

A head and shoulders pattern can also appear in an uptrend. This tends to just act as a pause on the main upward price trend. A similar pattern can be seen with an inverted head and shoulders pattern in a price downtrend. Here is what these look like

Head and shoulders as continuation patterns

Like for the reversal patterns, as continuation patterns, they can also be used to establish price targets.

Other patterns

Yes, there are other patterns including flags and pennants and expanding triangles and wedges. Flags and pennants are quite frequently seen and can be traded in the same way as triangles and wedges. Expanding forms are less frequently seen.

However, if you start out trying to identify all kinds of patterns out there you will not see the wood for the trees. It is better to start trying to identify a few of the most frequent and more reliable patterns and build experience and confidence trading what you can see.

Time targets

In addition to defining a price target and setting a stop-loss for each trade you enter, you should set a target time by which the price should reach its target. To some extent, this is a matter of personal preference, but what you have to watch for is softening momentum.

Since we are swing trading, we are trying to catch the momentum of a price swing that is either sending the price bouncing back from a support or resistance level or catapulting from a price breakout. If we wait too long then momentum may be lost and the price could revert back to a mean.

A simple way to set a price target is to use the formation of the price pattern and extend that out. So if it took three months for a price pattern to form it would be reasonable to wait three months for the price to hit its target. I would recommend watching the daily trading volume and other indicators to be sure that there is still momentum behind your desired price move.

What this means for the swing trader

We had our earlier definition of swing trading as trading within levels of price support and resistance. I would extend that definition to trading either side of price support and resistance.

Since establishing support and resistance and trend lines is more an art than a mathematical science, it isn’t really practical to backtest this approach to trading. Price charts more often than not present confusing pictures rather than clearly formed textbook trend reversal or continuation patterns. This means it takes time and practice.

So how do you go about acquiring this skill – a good place is to start with historical price charts but I wouldn’t suggest just any old charts.

Since there are many stocks, ETFs, commodities, and forex pairs to chose from it makes sense to choose the most likely candidates, so what attributes are we looking for?

That is a general list but I would go further. OK, this is my personal taste but I think it makes the most sense to stick with stocks and ETFs for a number of reasons.

Stocks and ETFs are building in value over time. This means if you stick with the stocks of growth companies or the ETFs of growing industries, you have a reasonable expectation of seeing value appreciation over time.

Most of the large online brokers will allow retail investors and traders to open a brokerage account with no or a very low account minimum and trade stocks and ETFs on US exchanges with no fees. This doesn’t apply to penny stocks. But if you want to invest in or trade penny stocks that is a whole other animal.

Here is a comparison of the service offerings of some main brokers.

Many stocks and ETFs will also exhibit large price movements in relatively short spaces of time. Some stocks will move 5 or 10 percent in a week and you need price movement to be able to make meaningful trades.

Stocks in large companies will often be heavily traded making them liquid which means you are always going to be able to get in and out of a position.

Another important feature of stocks and ETFs is that many larger and higher value stocks and ETFs will have options that can be readily traded. As you gain experience and confidence in trading stock and ETF positions over the short and intermediate-term or a few weeks to months it is a straightforward task to trade options instead of those stocks and ETFs. If you chose options carefully you can amplify your results while managing your risks. By amplify I mean you can increase your gains and your losses.

What kinds of stocks and ETFs

So of all the thousands of available stocks and ETFs which ones should you be studying – clearly nobody can study thousands of price charts every day and stay sane.

Again this is my personal choice but I would target first leading stocks and ETFs in leading sectors. This is because you are going to have the most price movement in an upward direction with these stocks and ETFs. Here is another piece of reality, most of us starting out are going to be more comfortable taking long positions in a bull market than short-selling stocks or buying put options.

This will explain how to identify leading sectors.

How many trades and how often

This is an important question and one of personal taste and capacity, but there is a practical consideration. To spot price patterns that can be traded you need to be studying the charts of a number of stocks and ETFs on a daily basis. It probably makes sense to start with a manageable number. I would say that studying the same 10 price charts a day is a good place to start.

We have noted before how reversal patterns take up to a few months to form and a continuation pattern a month or so. We can also conclude that levels of price support and resistance can be tentatively revealed in a month or so. Under these circumstances, we could anticipate identifying somewhere between a few to 10 trades per month. Also, because of the nature of the signals, we would be trading on, we can expect to hold each position between a week to a month or so.

Comparing the different patterns we have looked at, we can expect that the price target for a head and shoulders pattern would yield a gain of between 5 and 10 percent or a loss of 2 percent. We would typically have to hold a position following a head and shoulders signal for up to a few months.

I would also expect similar results from the other price reversal patterns and price continuation patterns we looked at.

Breakout or fake out

We should be aware that many would be price breakouts turn out to be fake outs. This is going to happen. It doesn’t necessarily mean that a trade goes bad on us and we get stopped out. It can also mean that instead of the price merrily marching off where we wanted it to go, it sort of coughs and splutters and staggers and doesn’t quite get there.

So instead of closing out a trade after a month with a 10 percent gain, we may opt to close out a trade with a 4 to 5 percent gain after a month and a half if we see uncertain and wavering price movement. Faced with such a situation it is going to be better to close the trade and move on.

Between support and resistance

Looking at the shorter-term patterns, if we are trading off price bounces from levels of support or resistance we can expect smaller gains of 3 to 5 percent and we would need to work with very tight stop-loss orders to limit losses to 1 percent or less. I would expect to hold such positions for one to a few weeks.

Mind the gap

One of the downsides of swing trading stocks and ETFs is price gaps.

Prices can move in between trading periods, i.e. days or over a weekend in jumps. In these cases, we say that prices gap up or gap down. You sometimes see price gaps of 10 percent or more and these can happen on earnings reports or other sudden news. Where these gaps can hurt a swing trader is if you are stopped out of a position at a price level substantially beyond your stop-loss order level.

If you swing trade this is going to happen. You can minimize this to some extent by avoiding holding positions over earnings reporting dates, but you can never eliminate the risk of sudden unexpected overnight news.

Slippage

Slippage is the term used to account for losses on trades that happen when you open and close positions. There is always a price bid and ask spread and it is unlikely that all your trades will be executed at exactly the midpoint between the two. Your broker will be shaving off the bid and ask spreads and this will mean less gain and more loss than you fully anticipated. The more you trade and the narrower profits you trade for the greater will be the impact of slippage on your overall trading gains.

Paper trading

One thing many professional investors and traders will advise is to paper trade for some time before you start with real money. I think this is much a question of temperament. If you have the temperament to trade on paper for six months or so then please do. You will learn a lot.

The reality is though that trading only becomes real when you have skin in the game – i.e. your own money. Much will depend on your circumstances, but it is possible to start trading with just a few hundred dollars and while you are learning there is no need to compound your gains. You can start with a position size of 100 or even as low as 50 dollars and trade fractional shares and stick with that level until you are comfortable to increase your position size.

Questions and answers

Q. What is the difference between swing trading and day trading?

A. Swing trading involves holding positions for a few days to months. Day-trading involves opening and closing positions within a single trading day. You need real-time price data today trade however you can work with time-delayed prices for swing trading. Day trading will keep you glued to your screen when the market is open but swing trading can be done part-time. Many swing traders have regular day jobs.


Q. Is swing trading more profitable than day trading?

A. Both swing trading and day trading can be profitable and you can lose your shirt doing either. Many people try swing trading and do not succeed because they don’t take the time or effort to study and learn and develop a working trading system. Day trading usually takes more preparation than swing trading because you will need to pay for real-time price data, but you can also easily fail at day trading since the profit margins are narrower and commissions and price slippage will play a bigger role than they do in swing trading.


Q. How much money can you make swing trading?

A. You will see a lot of divergence of opinion on the answer to this question. Some will conservatively tell you that a trader can expect to earn around 10 percent a year on their capital. Others will tell you that between 10 and 40 percent is more reasonable and some years may also be down years, i.e. you may lose.


Here is a single-page summary of swing trading for a profit available as a PDF download. Swing trading for a profit summary

I hope you found this article interesting and useful. Do leave me a comment, a question, an opinion, or a suggestion and I will reply soonest. And if you are inclined to do me a favor, scroll down a bit and click on one of the social media buttons, and share it with your friends. They may just thank you for it.

Disclaimer: I am not a financial professional. All the information on this website and in this article is for information purposes only and should not be taken as investment advice, good or bad.

Affiliate Disclosure: This article contains affiliate links. If you click on a link and buy something, I may receive a commission. You will pay no more so please go ahead and feel free to make a purchase. Thank you!

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26 Comments

  1. This is a great piece of information and guidance for investment. I never knew there were a lot of terminologies involved in stock market investing. Well, thanks for highlighting these terminologies in this article. Between Swing Trading, Day Trading, Scalp Trading and Position Trading, which is more suitable for beginners?

    • Hi Nelson and thanks for the question. I would actually say that position investing is probably the best for someone starting out investing. It is easier to start by positioning yourself in strong companies or ETFs and holding those positions than trying to get in and out of the market. Generally though much depends on temperament, risk tolerance, and risk appetite and how much time and focus you are able to dedicate to the task of learning how to invest. But learning what your preferred style and approach to investing is one of the most important aspects of this. Because if you get that wrong you will either get shaken out when the market turns against you, or you will get bored and abandon your approach too soon. Here is another article that considers these questions.
      Thanks for the question and best regards, Andy

  2. We did not know there was so much to learn about trendlines and price breakouts from trendlines. That all of this comes from stock trends and when they go up and down and you have to know the different patterns in between mean. We had no idea of how much complexity there is in stocks and trendlines. Learning something new every day and hope to see more interesting articles like this one.

    Cheers,
    Mathew&Deloris

    • Hi Matthew and Deloris and thank you for your complimentary comment. I will be posting more material that goes into different aspects of trading and investing. I hope you will come back again. Best regards, Andy

  3. Thanks for the comprehensive information.

    The reality is that I didn’t know that there was so much to be taken into consideration when trading. I imagine for many people involved that it is a lifetime quest to ‘crack the trends’ so to speak.
    However, because there are so many factors that need to be considered when evaluating the profitability of trading a particular stock, it makes predicting the trends almost impossible. And I guess this is why many people can win as well as lose. All it may take is a bit of good or bad news to radically affect a particular stock, and therefore our bottom line.

    I’m going to take your advice and stick to stocks because by their very nature they seem to be more predictable and stable (I hope I’m right?)

    Thanks for the education.

    • Hi Andrew and thanks for the comment. I think one of the main differences between investing in stocks and trading commodities, forex or cryptocurrencies is that at the basis of stocks there are mechanisms of value and wealth creation that the underlying companies are delivering on. Yes, there is a lot of noise in stock prices and the shorter your holding and trading time horizons, the more prevalent is the noise but the converse is also true. The longer your holding horizon the more the underlying value is going to be reflected in prices. This is why fundamental analysis works. But technical analysis also works because human psychology plays out in prices, and particularly in price swings around levels of support and resistance. Thanks again for your comment and good luck with your investments. Best regards, Andy

  4. Great explanation, Andy. I have said it before: where were you when I was trading myself. 🙂
    I have never been very good at swing trading and day trading, although I liked it so much, that I continued doing it for quite some time, even losing money. Not clever, I know.
    I have a friend who was really good at this stuff, and I have watched him in awe several times. He would sit behind his screens and buy and sell at the right moments. Losing money at times too, of course, but gaining more. I can’t believe he quit doing this, but in the end it is stressy business and he didn’t want to be stressed anymore. You really need to have a strong characterand if you do, trading can be really profitable!
    Thanks for yet another valuable article, Andy! 🙂

    • Hi Hannie, Yes, trading can be stressful if you let it be. I run a portfolio that is a blend of long and intermediate-term positions and shorter-term trades. I find its better to keep the shorter-term trades down to a small number at any one time otherwise it does become consuming and stressful. I am still very much an amateur and learning and it is an interesting journey. Thanks again for your comment. Kind regards, Andy

  5. Hi,

    This is a very interesting post. I honestly don’t know much about investing and trading, but I learned a bit today. Loved the detail of the post, and it was easy to understand.

    I will definitely keep an eye out for your future posts.

    All the best.
    Adam

  6. I love how you’ve explained everything in such an easy to invest manner. (see what I did there?)

    I’ve been trying to make this trading thing work for such a long time now, and I finally think that I’ve found the guy that’s going to share his expertise and help me get where I want to go. (you)

    Hope you can keep up the good work cause you just got a new follower!

    Love your content, Alex!

    • Hi Gorjan and thank you for the very positive feedback. I think with investing and trading it really is a question of helping people to learn to fish rather than giving them fish. It is so important to adopt an investing and trading approach that suits the individual’s psychology and capacity. We are all different and we are all learning. There are some other articles here that you may find useful. This one deals with understanding yourself as an investor and this one deals with growth investing but do take a look at others here. I will be adding more articles over time. Good luck and best regards, Andy

  7. What valuable info you provide here, Andy! I have actually paid money for learning to trade and you are giving away this info for free.

    Could you please share for how long have you been trading this far? I would love to hear your story!

    Best Regards,
    Natalie

    • Hi Natalie, Thank you for your positive comments. I have been investing since the mid-1980s in various guises and forms. I started investing in shares around that time through a broker at my regular retail bank. That lasted about 5 years and in the end, I was ahead by a small amount. I’ve held mutual funds and the like throughout this time but I started investing in shares using a rules-based momentum method in 2002. That worked very well for many years and then the online stock screener that was essential to my method was no longer available. I had to substitute for another with slightly different functionality. Over the years it became obvious that the different functionality was actually critical especially when there was major sector rotation in the markets. I started trading options earlier this year. Now my portfolio is a mix of ETFs stocks and options. I trade deep in the money mostly call options with mixed but on balance positive results. Like all of us in this lifelong endeavor, I am leaning. Thanks again for your comments. Best regards, Andy

  8. Hi Andy,
    Now I understand many of the terms my co-worker was throwing around! He was really into trading and spoke a lot about day trading and swing trading, trends, ranges etc. He made a fair bit of money from trading but it was a really intense, stressful and all consuming exercise. He was constantly checking trades – but I guess he was good at it. He encouraged me to join in on the action, but I didn’t have the heart for that much stress on a constant basis. I prefer a medium risk mixed portfolio.

    • Hi Ceci
      Thanks for your comment. I agree absolutely with you that you should adopt an investing style that is suited for the time and energy you are able to dedicate to the process and the level of stress you are comfortable with. If a medium risk mixed portfolio works well for you then that is probably the best choice. Making an extreme analogy, investing can be seen as a tortoise and a hare situation. The tortoise will take a slow and steady approach and if he or she starts out on the journey early enough, then stands the best chance of arriving successfully at the finish line. The rapidly trading hare, stands the risk of burning itself out!
      Best regards
      Andy

  9. Hi you have mentioned using fundamental and technical analysis for swing trading however I can’t find any info on where you do your fundamental analysis.

    I have been trading for over 10 years and only use tech analysis 100% but want to get into some fundamentals where is a good place to start?

    Crypto Dave

    • Hi Dave,

      Thanks for your comment and question. I guess I skipped over the point of using fundamental analysis in swing trading. Where this comes into play is the choice of stocks and the choice of sectors. The most fertile stocks for swing trading, particularly if you are looking for stocks to break out beyond a level of price resistance, will be stocks that are exhibiting strong earnings and sales growth and have strong financial foundations with acceptable ratios of debt to equity. These are all considerations core to fundamental analysis. For a summary of areas addressed by fundamental analysis, please check this link.

      Thanks again for your thoughtful question

      Best regards

      Andy 

  10. Hi Andy
    Thanks for your reply and the link to your fundamental analysis article, I can use a lot of the info you have provided and adapt it for crypto as that is all I trade now. I guess I will be reading a lot of White Papers from now on.
    The way I currently trade I only use Tech analysis but want to start looking into fundamentals, your article has got me keen.
    Thanks and Happy Trading
    Crypto Dave

    • Hi Dave
      I haven’t traded crypto but I do have a small position in Bitcoin and Ether really just to see what they do. I read somewhere that if you look at how Bitcoin has done over every 4 year period or so it has more than doubled. I know very few people do that but that seemed like a good buy and hold bet for me. I am sure you can make more trading it on a shorter-term basis. I actually feel more comfortable with stocks because there is a fundamental aspect to their value. I really only touched on fundamental analysis in that article. It is a huge subject employing many full-time professional researchers most of whom specialize in particular industries or market sectors.
      Good luck and happy trading
      Kind regards
      Andy

  11. You went to a lot of trouble to write an extremely detailed blog.  Thank you for the information.  I certainly learnt a lot about trading and I had not known about swing trades before this.

    I have only invested in ETFs and some cryptocurrency. 

    Financial Education is vitally important for everyone and yet most people would rather allow their money to be looked after by someone else. Therefore, your topic and article may remain as a niche subject, obviously that will not be a negative thing for you though.

    I do hope that many people are exposed to it to increase their financial literacy.

    Thank you for all your effort and time to go into intricate explanations.

    Wishing you the best

    Sheen

    • Hi Sheen, thanks for stopping by, and thanks for the very positive and encouraging feedback. I am glad that you found the article interesting and I hope useful too. Good luck with your investments. Best regards, Andy

  12. I am so happy that I came across your website. I have always thought that trading and investing are complex. Now I have gained more knowledge, but there is still a lot to learn. Btw I am new here, so sorry if my question may sound stupid, but what’s the difference between trading and investing?

    • Hi Delyana and thanks for stopping by. I am very glad that you found the article interesting and useful. That is a very good and relevant question and an important consideration for anyone who is involved in the markets. The principal difference between investing and trading is one of perspective. Investing is considered to be buying and holding assets for the long-term in the anticipation that the assets will provide a mixture of income, in the form of dividends or coupons and appreciation in value so that when the assets are turned back into cash at some future date, usually years away, they will return more in cash than you invested in them. Trading is more of a short-term activity and seeks to buy assets at a low price and sell them within a shorter timeframe of anything from minutes to a few weeks or even months at a higher price. Trading can also involve short-selling where you sell an asset at the current market price that you don’t own in the hope that you can buy it back later at a lower price because you expect the market price to drop. This is a very important question because everyone either investing or trading needs to know what they are doing and why what to expect and be comfortable with it. Thanks for the great question. I wish you good luck with your investing or trading and have a great day. Andy

  13. Great post and loved the way you explained the trends using diagrams. I have always had this feeling when it comes to stock markets…human sentiments also play a vital role apart from the fundamentals. My question: Can we capture human emotions/biases through these trend lines ? Also, sometimes I have also heard about price rigging which brokers tend to on some stocks – How do we address such factors ?

    • Hi and thanks for the comments which open up interesting areas one which much has and can be written and discussed. A trend line is either up down or sideways. From a purely technical perspective, price resistance and price support are by definition set horizontal levels, but when you can see them move over time, that is when prices are trending. For example, you often see price support or resistance following a 10-day or 20-day moving average whether trending up or down. As to whether trends reveal human emotions, or maybe we should say human sentiment as regards the market direction, the answer is clearly yes. Even though most trading in the stock market is executed by computers, the computers have been programmed by humans to act in a certain way, even when the computers are programmed to adjust the points at which they trade according to price action. In simple terms, a rising trend indicates a bullish investor sentiment while a declining trend indicates a bearish investor sentiment. For a look at how predominant investor sentiment tracks stock market cycles, and how that fits with economic cycles, check here. How much of the bullish or bearish sentiment is due to fear or greed can turn on a dime.
      As for price rigging that was clearly how many market makers operated decades ago. You could argue that when market makers widen bid-ask spreads they are trying to reduce their risk because their situation requires that they make stocks available in the market and this often requires that they take positions they would prefer not to. I think the best way to avoid brokers skimming larger than reasonable commissions on trades is to stick with liquid stocks, funds, and options and avoid micro-cap, penny stocks or high-priced low-volume options. But if you do invest in less liquid instruments like these then recognize that more of your potential gains are going to go to market makers bid-ask spreads.
      I hope this helps, and please let me know if I am off-base or have misunderstood your comments and questions.
      Kind regards
      Andy

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