Swing Trades Basic
~ is a position you hold overnight or carry over for more than 1 business day. Typically it is more popular strategy to new traders, it is less volatile and less complicated compared to day trades. Trading is a complex activity, there are numerous techniques you can utilize to determine your buy point and sell point on each trades.
Technical chart pattern ~ ie; double top, double bottom, head and shoulders, cup & handle, triangle breakout, round base bottom, bull flag etc.
Technical tools ~ fibonacci retracement, p & f, darvas box, ichomuko cloud, candlesticks, andrew’s pitch fork etc.
Algorithms (* this options is offered in some brokerage platform*)
Options volume ~ heavy interest on calls or puts; (*traders typically follow the unusual option activity*)
Fundamental values and Catalyst trades*
The lists goes on for technical tools and strategies, I can write an entire topic for that matter, but that’s not our topic for today. I have listed the above just to give an example. So after determining which strategies suits your trading style the next thing to do is finding a favorable technical set-up whether long or short trades.
~ is how you manage your risk exposure on each trades. On each trade entry you make, you must have a projection of stop loss and profit trajectory.
Sample projection -> basis for each trade is 5% -8% stop loss with profit reward of 10% -20%.
Capital allocation and Liquidity ~ ideally you do not engage with a single trade with ‘all in’ meaning 100% of your capital in single trade. Usually 5 -10% capital allocation on single trade position. Only you know how much asset you have, please spend generous time on formulating your percentage allocation on each trade. Sample -> 5% of $10k capital is $500, while 5% of $1 million capital it is $50k. Liquidity is important as this is the lifeline of your trading career,
Hedging ~ this is advanced strategy and complex topic. Just to give an idea how it’s done -> Short position is hedged with calls; Long positions hedged with puts; some uses derivatives hedging;
Cash or Margin account.
Self discipline is part of risk management ~ it enables you to sit on your hands when there is no probable technical setup to trade, cutting losses and taking profits, and sticking in your trade plan no matter what the analysts or social media’s opinion in your position.
No matter which trading vehicle you choose to pursue in trading, whether its options, common stock, forex, futures, bonds, commodities or etf’s. Your basic foundation will remain the same. It is your own strategies and risk management that will shape your trading career. The most valuable asset in Trading is mastery of Risk Management, as the Veteran successful trader has said ‘everyone can read charts’ it is the risk management that sets apart the successful trader and a losing trader.
I would like to remind those who are new to stock market, that Trading is a business, never forget that, just like any other business, if you are starting out, you are not expected to make money but in fact, make cash burn or it is losses realized in trading. Take small position and use Cash account as you start out. Don’t be disheartened when you are incurring losses on a trade, it is inevitable in this business as every position we take, there is risks associated with it. It takes time to develop trading skills. Years to pick up mastery in your own trading techniques and realizing your own strength. Consider the first to two years of your losses as admission or tuition fee to the stock market. Have a record on each of your trade, describe your reason for the trade, and, which strategies works for you. Invest to develop and nourish your trading knowledge. Each traders is different, only you can discover your unique trade abilities and talent.
Trading is rewarding once you mastered it, it gives you flexible time and limitless profit opportunity. I wish you a happy and successful trading career going forward!