5 Steps to Successful Swing Trading

Swing trading is certainly no easy task.  Over the course of the few years, I’ve learned several important factors investors should employ when swing trading.  One thing everyone should know before anyone else is that it is almost impossible to time the market perfectly.  No matter who you are or what tools you have, there’s no absolute solution for finding the “right” entry point and the exit point.  Your focus should be to catch everything else in between.

Screen For Opportunistic Stocks

• Use technical indicators such as MACD bullish/bearish cross-over
• Look for new lows/highs and gap downs/ups
  
• Bullish/Bearish candlestick patters
• Look at Bollinger Bands and Relative Strength Index (RSI)

Determine Entry/Exit Point

• Use Leading (RSI, Williams R, Stochastic) and Lagging indicators such as (MACD, Moving Average) to determine if it’s the right time
• Look for previous  support and resistance levels
• Use trendlines to determine potential support
• Look at VIX to determine volatility and fear in the market
• Use Parabolic SAR (Stop and Reverse) as a guidance for stop-loss
• Accumulation/Distribution Divergence to determine reversals
• Look at economic calendars and news worthy of a market mover (unemployment reports, government intervention, etc)

Determine risk-to-reward ratio

• Base the risk on “stop-loss” price in which you’re exiting the stock
  
• Base the reward on “exit” target price – derive this from Fibonacci Retracements, Trendline, Previous Resistance
  
• The higher reward ratio, the better (this is rocket science)

Execute

Stick To Plan

• This is by far the hardest part, at least for me.  Once you have a plan, stick to it and never look back.  I still have a hard time doing this, but time after time I get the same advice.  Get rid of the emotions, execute to plan.

One thing for sure though: When you plan and excute to plan…you get an amazing sense of accomplishment if it turns out to be a great decision. It won’t happen everytime but give it a try.