Swing Trading Rules Review

About the Basics of Swing Trading for Beginners

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Swing Trading is the precise entry and exit of a stock based upon a single run up, or down for selling short. This is typically 3-5 days, but it can be as short as 1 day or as long as 10 days. The theory is based upon the fact that all stocks rise, then retrace or consolidate, and then rise again.  

Swing Trading requires the ability to recognize early buy and exit signals. Swing Trading does not rely upon profit stop losses for exits, but mostly depends upon selling “At Market” or a very tight stop loss intraday. The Swing Trader exits prior to any risk of retracement. Swing is most lucrative during strong Momentum Market Conditions.

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You must study prior runs to see how many points are possible during a Swing Trade.          I recommend that you select Swing picks only if they have at least 3 points in a run on average, but 5-10 is more ideal however this often only occurs in at least Moderately Trending Market Conditions. You count a run by starting with the first candle that started the move up, and you start at the low price. 

Then you go to the highest candle, and take the high for that day. That is the Run Gain. You should try to calculate at least 3 previous runs, to get the average run. You must also count the gain for the day that the buy signal formed, and subtract it from the total run gain points to get the remaining points left in that run. So if less than 3 points are remaining, the pick is not ideal for a Swing Trade REGARDLESS of whether or not it moves up the next day.

Do not expect to get all of the point potential out of a single run. It will usually be less, given the entry and exit rules a Swing Trader must adhere to for consistent success. If you want to be a Swing Trader, you must adhere to strict rules for selection of stock picks and trade executions.  

Swing Trading Rules include the following:

1. Must be patient and wait for ideal setups. 
2. Have a rather high Risk Tolerance.
3. Trade in larger share lots than a Position Trade.
4. Must be able to ignore stocks that move which you did not select. 
5. Must use Swing Style stop losses. 
6. Know exit signals for Swing Trading.
7. Be able to react quickly to exit signals, so you can Sell At Market SAM.   

A typical run lasts anywhere from 2-10 days. A Swing Trader will rely more heavily on Stock Scans than on Watchlists, but in some Market Conditions you must use both to find adequate stocks to Swing Trade.

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A Swing Trade has only a few days of Consolidation or a steep Peaks and Valleys Formation, with weak support near price. 

Lastly, a Swing Trader must be able to trust the charts and what the charts are telling you implicitly. Swing Traders do not have the time to second guess their tools. Do not check Fundamentals unless you are using an Earnings Strategy. You are in a Swing Trade for such a short period of time, that checking Fundamentals or News can actually harm your decision making process. So if you do not feel comfortable buying a stock unless you have checked Fundamentals and News, then you are not a Swing Trader. Also remember, that most News about a stock is published after it has begun to move.

I invite you to visit the Learning Center on my TechniTrader.com website, below is the link: 
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Trade Wisely,
Martha Stokes CMT

Chartered Market Technician
Instructor and Developer of TechniTrader® Stock and Option Courses
TechniTrader DVDS with every course.

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