longer-term swing trade

H

honghsu

Hi,

I am not sure this is right place to ask the question, but try.

I notice that there are different schools in terms of time frames of stock trading:

A.daytrader who completes trade within a day or so
B.swing trader who accomplishes trade mainly between 1 to 6 days
C.fundamental analysis based investor who holds a stock share for 12 to 18 months, or even longer.

I saw many books and websites for above three kinds of approaches and services. However I do not see a single book and website who are focusing on longer-term swing trade between B and C, such as 3 to 8 weeks. Because of different time frames, the analysis methods of these traders and investors are significant different!
I am wondering someone could recommend one or two very good books and websites for longer-term swing traders if there is one.

Your response will be appreciated,
 
I trade between B and C and use a significant amount of derivatives to juice the returns even more. Average hold time is 3 weeks to 6-8 months depending on fundamentals and absolute return. I have found next to nothing in print or on the web about this time frame and style.

Mostly day traders here...some swing traders...almost no fundamentalists.

I would suggest taking your own lessons from each group to form your own patterns. That has worked very well for me.
 
ktm,

Although A, B, Cs trading have many common, handle longer-term swing trading has significant differents:

Because of holding a stock much longer than B-type trader does, you have to use fundamental analysis approach to select potential buy stocks in order to keep their bottom line. Question is how. This is questions one.

Secondly for B-type swing traders, one better to select market participating stocks. For longer-term swing traders, this is not the case because market usually will not last that long period of time. Thus you have to select non-market participators. Well, that brings another issue...

and most important, how to set up offset for stop loss for longer-term swing trading.

I sincerely wish you would share your thoughts on above three issues. Thanks again,
-Hong
 
Because of my job I am continually developing a variety of swing trading strategies that run from 2 weeks to 3 months. I have struggled due to undercapitalization but fully believe in the long term potential. If anyone finds any sites/books that cover this type of swing trading, I'd love to hear about it.
 
Question 1 was fundamentals:

I use a modified Graham/Dodd/Buffett model. I look for companies making money with sustainable margins, industry/sector leadership positions and solid financials that are out of favor or present good value. The fundamental work is the most time consuming and most important aspect of the operation.

Ques 2 - I'm not sure what you mean by market participation?

Ques 3 - I do not use stop losses. I average down. This is contrary to what many believe about trading/investing but I have rarely been burned. Again, this is where the fundamentals come into play. You are buying the stock when it represents good value, so if the price declines the value should be even better and you should buy more. In reality, downward price movement causes me to sometimes completely start over and re-evaluate a stock to see if I may have missed anything. Sometimes I will sell if I feel the fundamentals have changed or that some forensic auditing reveals potential accounting shenanigans. Otherwise I buy more.

That said, many positions start very small relative to my available capital and I buy much more as the price declines.
 
ktm,

to the second issue. With my observation, there are two kinds of stocks: market participators and non-market participators. When market, such as Dow Jones Industrials or NASDAQ, go up, a group of stocks follows up. These stocks I call them market participators. Of cause, when market went down, they also follow down. An example of participator is BEAS which follows NASDAQ. Non-market participators are stocks which do not follow the market. an example of non-participator is RDO.

If you do day trading or swing trading, there are two forces can be used for participartors: market up and stock itself bottom up. Thus when market goes up AND the stock bottom up, most likely odd of win is at your side.

Of cause above is just simplified situation. In practice, non-participator can change to participator AND some stocks are only sector participartor, not market participator.

Back to my second point. Because the market going up only last short period of time continuously, say 6 days. When it change its direction, participartors corrupted if you still want to hold them for a couple of weeks.

I still have a question for you. What is modified Graham/Dodd/Buffett model? Is there any place I could look at it, OR would you send me an attachment to my home e-mail address. It is interested to know that.


Many thanks ktm,
 
>However I do not see a single book and website who are focusing on longer-term swing trade between B and C, such as 3 to 8 weeks.

I trade in this time frame in the position trading room at RealityTrader.com. Since these deep time frame patterns only show once or twice a month, we spend the majority of the time trading the daily patterns. (Currently long GE off the weekly double bottom and gap n snap.)
This deep time frame trend following style is one of my favorites. It’s slow and boring for many, but if patient and willing to wait for the right market circumstances, I have never seen a style with a larger risk to reward ratio. You can routinely get 3 to 1 or better for your profitable trades.

There are few books out there that talk about this style, Trader vic, and reminiscences of a stock operator are the two that come to mind. I taught myself to trade positions after I got frustrated by my swing trades. I’d take a trade, bank a nice profit, then 2 weeks later notice the stock was miles higher. So I started to hold more of the wiggles, and let the trend work itself out.

This time frame is definitely worth pursuing! Here is some text from “reminiscences” that fit....

Good Luck and Good Trading,

-Bo Yoder

=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=--=-=-=-=-
And right here let me say one thing: After spending many
years in Wall Street and after making and losing millions of
dollars I want to tell you this: It never was my thinking that
made the big money for me. It always was my sitting. Got that?
My sitting tight! It is no trick at all to be right on the
market. You always find lots of early bulls in bull markets and
early bears in bear markets. I've known many men who were right
at exactly the right time, and began buying or selling stocks
when prices were at the very level, which should show the
greatest profit. And their experience invariably matched mine --
that is, they made no real money out of it. Men who can both be
right and sit tight are uncommon. I found it one of the hardest
things to learn. But it is only after a stock operator has
firmly grasped this that he can make big money. It is literally
true that millions come easier to a trader after he knows how to
trade than hundreds did in the days of his ignorance.
Disregarding the big swing and trying to jump in and out
was fatal to me. Nobody can catch all the fluctuations. In a
bull market your game is to buy and hold until you believe that
the bull market is near its end. To do this you must study
general conditions and not tips or special factors affecting
individual stocks. Then get out of all your stocks; get out for
keeps! Wait until you see -- or if you prefer, until you think
you see the turn of the market; the beginning of a reversal of
general conditions. You have to use your brains and your vision
to do this; otherwise my advice would be as idiotic as to tell
you to buy cheap and sell dear. One of the most helpful things
that anybody can learn is to give up trying to catch the last
eighth or the first. These two are the most expensive eighths in
the world. They have cost stock traders, in the aggregate,
enough millions of dollars to build a concrete highway across
the continent.
Another thing I noticed in studying my plays in Fullerton's
office after I began to trade less unintelligently was that my
initial operations seldom showed me a loss. That naturally made
me decide to start big. It gave me confidence in my own judgment
before I allowed it to be vitiated by the advice of others or
even by my own impatience at times. Without faith in his own
judgment no man can go very far in this game. That is about all
I have learned to study general conditions, to take a position
and stick to it. I can wait without a twinge of impatience. I
can see a setback without being shaken, knowing that it is only
temporary. I have been short one hundred thousand shares and I
have seen a big rally coming. I have figured and figured
correctly -- that such a rally as I felt was inevitable, and
even wholesome, would make a difference of one million dollars
in my paper profits. And I nevertheless have stood pat and seen
half my paper profit wiped out, without once considering the
advisability of covering my shorts to put them out again on the
rally. I knew that if I did I might lose my position and with it
the certainty of a big killing. It is the big swing that makes
the big money for you.
 
ktm,

Would you explain a little more about what you mean by "averaging" down? Is it more of an art than a science (i.e. just buy more as you see the price drop)? Or do you have any specific protocols/criterion/algorithms for this?
 
Hong,

One thing you may want to consider is William J O'Neill's how to invest in stocks. And at least pick up a copy of the the Friday Investors Business Daily. In that it lists stocks within 10% of a 52 week high with earnings that are better than 80% of the IBD universe.

Now in saying this, I would avoid trying to make money buying a cup with handle breakout as is suggested in the book. But what may work is to track the strong stocks and to accumulate them on a pull-back. The strongest stocks will get buying at the 50 day moving average, next stop the 200 day.

As for fundamentals, they do matter in the longer term. And I use them to a degree, but in a 3-8 week trade they will seldom play out they way you expect. You could craft reasons fundamentally for the market or a stock to rise or fall. But at the end of the day the "WHY" is not important it is catching part of the move.
 
Honghsu,

I too recently asked for a rec on a swing site on ET. I can't recall who suggested it, but I was referred to momentumstockplays.com. I took the trial, and I discovered it was exactly what I was looking for. Though the focus isn't entirely based on swing trading, most of the stock recs match the approach. On another note, avoid the trendfund.com site.

TA
 
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