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Because you are trading in the direction of the trend. You wait for a pullback before entering the trade, and you enter only if the stock shows a sign that it’s price will continue in the direction of the trend.
The main objective of a swing trader is to profit from swings in price movement over the course of several days. While we might trade every day, we are not day traders. As swing traders, we have the patience to wait until our profit goals have been reached. Fortunately, the wait is not too long. A typical trade is only in play from a few days to a few weeks. When a trade is closed, the funds go into the next trade.

Money management is very important in swing trading. I divide my trading capital by 15. This is the amount that I put into each trade. As the total account grows, the amount of each trade grows. If you can handle a larger number of trades, you might increase the number of trades that are active to 20. Of course you can also start with 2 or 3 trades at a time.

Each day I identify 20 to 25 candidates for swing trading. If I have 10 trades active and enough additional investment capital for 5 more trades, I pick the best 10 from my list of 25, and place the orders. Only some of orders will get filled. I don’t worry about running out of money – if there is no cash left in the account, additional orders will simply not get filled. (Make sure that your own account works this way, otherwise, your brokerage firm might fill the order and expect additional funds within the next few days.)

You must make a personal decision as to whether you want to trade on margin or not. If you are more conservative, you will only trade with the cash that you have on hand. As I discuss later in the book, margin is necessary for selling stocks short, so it is important to have your account approved for margin trading, even if you don’t plan to trade on margin.

The stocks I identify as good swing trading opportunities are made available each day through my MasterSwings service. Once a week, my picks are made available on my website – www.mrswing.com – or by e-mail, through my free MrSwing Lite service.

Swing trading should be both profitable and fun. Through the guidelines outlined in this section, you can achieve both of these simple objectives.

This entry was posted on Friday, January 11th, 2008 at 6:13 am and is filed under Swing Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.