What Is Swing Trading?
What Is Swing Trading?
Bear with me; it’s the writer in me that takes you through these loop holes before getting to my point but I promise it will be worth it!
When I first started out in the world of ‘investing’ some 15 years ago; the philosophy that flooded the Internet was that of the great, “Warren Buffett” and rightfully so! The man is a billionaire many times over. Net worth is currently 77.1 Billion!! It then makes sense why he is associated with “successful investing”.
If you’re not familiar with him, make sure you take the time out to get to know him. While I don’t adopt to his style of investing; he’s still an interesting guy and one that is worth following.
Find out more about him here.
At any rate; to make a long story short; Buffett is what we would consider a “buy and hold” investor. That is; he buys a stock and holds, and holds, and holds, and holds, and holds and holds and holds….
You get the point.
He seldom ever sells his shares and that is his trading strategy in a nutshell. Buy and hold fundamentally sound companies.
Warren Buffett didn’t make the behemoth of wealth he has, until he was in his mid fifties.
While being in your "50s" is considered somewhat middle aged; most individuals in their early twenties or thirties; do not want to wait until their fifties to realize their riches. Because of this, I quickly abandoned the ‘buy and hold’ trading strategy very early on.
Enter the world of Day Trading.
On surface level, day trading is a “newbies” dream. Without delving too much into it: Day trading is a style of trading that looks to profit off of a securities move within a day. Most day traders open and close their trades within the same day (often times minutes after entering the trade). On surface; this makes a ton of sense. You profit immediately (that day) and because you’re closing out your trades within a day, you needn’t worry about any overnight risks. That is, because you’ve closed your day trades within a day; you don’t have to worry about a trade going against you in premarket or after hours trading.
Isn’t that great!
Well, in theory, I suppose it is great until you actually venture out into the world of day trading and realize the headaches that ensue. PDT rules (you MUST have an account over 25k to day trade), being glued to your computer ALL day long, immobility, and the list really goes on.
Want to know the best part?
Statistically, 99.9% of day traders Fail. I know there are many clever marketers out there that paint a rosy picture but take the word of someone who has tried it all, statistically 99.9% of day traders FAIL!
That’s right; they FAIL!
Did I mention, 99.9% of Day Traders Fail!!!
I digress! To each his or her own!
But where does that leave someone like myself that’s passionate about the stock market and investing but don’t have the patience of a “buy and hold” investor, nor the time to “day trade”.
I told you to bear with me and thanks for making it this far!
That leaves me inside a healthy medium. The therapist in me wants to insert an analogy here; comparing this very subject matter to Sigmund Freud’s theory of the “Id, Ego and Super Ego” but the blogger in me, reminds me this ISN’T a research paper. It is just a blog on “Swing Trading”.
Okay, I can’t let 7 years of formal education in psychology go to waste.
Id= instant gratification
Ego= middle ground
Super Ego= Perfectionist
In this analogy, the Day Trader is the “Id”. They want their gratification and they want it now.
Super Ego is, “buy and hold investors”. They seem to always do the right thing, all the time.
Ego= Swing Traders.
Now, I don’t mean ego in the traditional sense of the word. Swing Traders are not individuals that hold on to pride. You can look upon us as Freud (the Father of psychology) indicates, “a healthy medium”.
Swing Trading is then a hybrid between day trading and buy and hold investing! Swing Trading is a middle ground. Swing Traders aren’t necessarily concerned with getting their profits on the same day; nor do they want to wait 20+ years to realize substantial gains.
Swing Traders are generally looking to capitalize on a stocks explosive move.
It’s pretty much common knowledge in the world of investing/trading that stocks pretty much do very little a majority of the time. When they finally make that explosive move; it generally last for a few days/a few weeks and then the stock goes dormant again.
Successful Swing Traders are trained to recognize and get into these stocks before they make that “explosive move”.
So we are in essence; looking to capture that explosive move when it happens.
We don’t want to wait around for years and years like ‘buy and hold’ investors.
Nor do we want to take a .1% of that move like “day traders”.
Swing Traders want to get in there the second before the move happens and take their profits before the stock goes back into hibernation.
This is effectively the swing trading strategy of a swing trader or swing trading!
So what’s the take away when it comes to Swing Trading?
Swing traders are looking to capture small gains (5-10%). While on surface 5-10% may not seem like substantial gains, replicated consistently over time; through the concept of compounding; those small gains add up to bigger gains over time.
And that’s effectively what we do at ShortMeTina.com; we look to consistently capture small gains over and over and over again.
Hope this article helps. Make sure to comment below.
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