Swing trading

S

swtrader

I am a former buy and hold investor who converted to trading a year ago (for obvious reasons). I have substantial capital to invest, but convential wisdom in investing during a bear market is basicly putting your cash into a roaring fireplace. I have reached a conclusion that trading, for all it's risks, is the only way to be involved in the market for the forseeable future. With any sort of return, (20 percent or greater annually), I could easily live off of it.

So far, about the only real thing I have mastered is the cardinal rule #1, "protect your capaital".

I think my temperment is more geared toward swing trading, so that I don't have to get caught up in the constant decisions that can lead to "getting caught up in it". So far the SPY looks like a bouncing ball, as it cycles it's way through a downtrend (and seems realtivly trackable via indicators mentioned in the next paragraph) - this may or may not continue. But it seems like understanding the "big picture", and more importantly, playing it with discipline and rigor using only what I see unfolding right in front of me could be profitable.

I have learned a lot about charts, have read a lot of John Murphy's stuff, and have looked at countless charts on www.stockcharts.com to see the interaction of stochastics, (fast/slow), moving day averages (50-200mda primarely), macd, adx, candlesticks and vix. So far, I have gained a lot of confidence in my ability to read these, plus have gained some knowledge of setting stops at support/resistance, cutting losses short, letting gains ride (but protecting them with trailing stops).

I also subscribed to metastock, but it seems that the backtesting is slanted toward (whatever worked in the past) and I am uncomfortable with some of the "black box" mentality that it requires to use the generated signals - Cardinal rule #2 is that whatever you buy and wherever you sell, it's your own decision, regardless of whatever the influences were to do it - this makes me want to understand what I'm doing as fully as possible, and have control of the process and myself.

I have looked at some of the pro shops, but am somewhat confused by the "their capital/my capital" stuff. I have substantial capital, and really don't need to use anyone elses.

While I think I have what it takes to get started, I also believe there has to be a way to better learn from those who are succeeding at this now, and am clueless as to how to go about this.

Any thoughts?
 
Learning about the market is a good step. Swings are a good way to make money. But if you want capital protection and complete control over your stop losses, daytrading is more appropriate. (i.e there is no way you can control stop loss with a stock that opens with a gap the next day). Try longbull.com, they will guide you. Once you understand their strategy you can trade on your own. There are also many other daytrading schools but learning while doing is the best way to progress. You can also develop your trading strategy with paper trades.
 
Thanks, I'l take a look at longbull.com

I agree, despite concerns of personal temperment more geared toward swing trading, the ability to protect against opening gaps seems the greatest arguement for daytrading.
 
Don't waste your time with longbull...ain't worth it.

Originally posted by swtrader
Thanks, I'l take a look at longbull.com

I agree, despite concerns of personal temperment more geared toward swing trading, the ability to protect against opening gaps seems the greatest arguement for daytrading.
More...
 
Trust your instincts..

Just 'cause Merc500 suggests day trading doesn't mean that it's appropriate for you. Yes, there is always uncontrolled risk when you carry positions overnight, but that doesn't mean that it's not a viable way of trading. Sometimes those opening gaps work in your favor!

It sounds like you're doing your homework - good job. Just keep in mind that you can't know everything overnight, so start small. If, as you say, you are well capitalized then watch your step. If you start small you'll have a far better chance of not losing your life savings. Think about it, experience will make you better, so trade bigger when your skill level has grown sufficiently. You don't have to bet all your eggs on "the bouncing ball."

Anyway, best of luck. Keep us posted on how you do.
 
swtrader,

Here's my .02 worth. Besides discipline, which you seem to feel you have, the MOST important factor that will contribute to your success is matching your style to your personality. You seem to feel that you are better suited for swing trading. Others are making a good case for daytrading, and perhaps you should give it a try and see how it feels. You sound like me several years ago. I walked away from a high-paying corporate job for a multitude of reasons. Money was not a problem for me. I started out daytrading, and as you mentioned, got bogged down in the constant decision-making process. To those who read this who do well daytrading, I salute you. On the other hand, I started learning about swing trading, and chart reading, and the concept of getting into a trade while simultaneously entering a trailing stop loss AND a profit target order with my broker. If either order is hit, the other is automatically cancelled. I realized right away this was a fit for me. I started out looking at end of day charts ( I think TC2000 is the cheapest, best way to do this) and usually would find 2-3 trades a day. When all of my orders are in place, I am free to do what I want with the rest of my day. While I spend most of my free time during trading hours researching/developing/testing new trading setups, I dont even look at my open trades during trading hours. Regarding the risk of overnight gaps when you keep a position, here's my thoughts/experience: You don't need a huge return to make the money you need. An important factor in any swing trading strategy is to keep your trades fairly small. So small that the monetary outcome (win or loss) of any single trade is virtually insignificant. This is the only way you will be able to stay disciplined and not interfere with a trade once it is in place. Personally, I risk 1/2 of 1% of my equity on each trade. My typical trade has about a 2 1/4 reward to risk ratio. It has also been my experience that opening gaps seem to go my way about 2/3 of the time. Yes, there is the the risk that you will be short a stock that gets bought out, or long a stock that gets downgraded or whatever, and the next days gap can be quite large. But, you could also be long a stock that gets bought out , or short a stock that has a bad earnings announcement. It all averages out over time, the key is to keep your trades small enough that no one single bad trade, or even a string of bad trades can knock you out of the game. BTW, I have been doing this about 5 years, and it took me a year to become profitable, but since then my WORST year is +30%. I know there are many daytraders that do much better than that, but this works for me, and my account is big enough that, like you, I can live nicely off of a return like that, while enjoying total freedom during the day.
Other people here will have good suggestions, too. I suggest you try many methods, risking just a little until you feel what is comfortable for you.
 
Mr roboto is absolutely right. You need to make sure that you trade with a strategy that fits you. Swing trading fits my personality much better, for example than position trading. I hate to see a stock rise, then gove up profits during a normal pullback.

When I do position trade, I set a pretty tight stop, usually based on a 20 dma. For some god swing trading information, I would suggest that you take a look at Alan Farley's site- Hard Right Edge. He provides a lot of good educational material, and posts some stocks to stalk, based on his pattern scans.

The suggestion re position size is alo important- check out Tharp's books.

My 2c.

Kevin
 
Mr. Roboto,

Thanks for your insights, it seems your goals and temperment are similar to mine.

I have examined TC2000, and ordered it. I was surprised to find it was free, with just a $30 data feed - I am paying about $60 for Metastock, which I really don't use. I'm sure that people can make money off of Metastock, but it seems to use singular strategies and generates "black box" signals.

I want a plan where I can incorporate ANY reason to close or open a trade, based on any and all indicators I trust.

For instance, take KKD Krispy Kreme. You could do reasonably well with slow stochastics on this one BUT, if you were not watching the 50 and 200dma, you were not aware of what was really going on (IMO)

(I am using YHOO charts here, since not everyone has the full stockcharts service)

http://finance.yahoo.com/q?s=KKD&d=c&k=c3&a=ss&p=m50,m200&t=1y&l=on&z=m&q=c

Also, on many of the financial stocks last month, stochastics, moving averages and stop losses would not have signaled "close the shorts", but the overall VIX (black candle at top of vix) said "close ALL shorts NOW!!". A market indicator not even appearing on the individual charts.

Does TC2000 support fairly custom searches, as well as multiple indicator combinations?

Is it compatable with the examples above?
 
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