Warrior Trading Blog

Introduction to Swing Trading

swing trading

Welcome to the introduction to our swing trading guide!

We will be introducing you to swing trading and helping you learn more about what it is, how it’s different from day trading, the benefits of swing trading, and how you can get started.

What is Swing Trading?

Swing trading is a methodology that involves holding on to your trade overnight or longer, which is the main difference to day trading. While it may be common belief that swing trading opens you up to more risk, the bottom line is that risk can be managed. Swing trading helps you reduce your risk by allowing you to capture greater risk/reward returns on your trade.

While a day trader may risk $1 to make $2, a swing trader may be able to risk the same $1 to make $5 or even $10, without exposing themselves to more risk than the day trader. This is one of the main benefits of swing trading. Other benefits include a slow pace of trading, which helps to limit stress and increase confidence, and flexibility in being able to trade throughout the market day.

We locate a majority of swing trading opportunities between 9:30AM-3 PM EST, which offers a wide window to trade.

Key Points

  • Swing trading involves holding a position over a couple days to several weeks
  • Swing trading looks at longer term charts and trends
  • Allows persons with busy schedules to participate in the markets without having to be at a computer all the time

Now that you understand some of the basics of swing trading, let’s talk about some of the concepts you will want to focus on in order to hone your skills as a swing trader. This includes building a watchlist, performing technical analysis, and trade execution.

Each piece of the puzzle is important in helping you achieve success in the markets, and we’ll discuss these in greater detail so you can be on your way to becoming a swing trader.

Swing Trading Watchlist

Before you can practice swing trading strategies on the simulator, it’s important for you to develop a comprehensive watchlist that you can search through daily to locate trading opportunities.

While there may be thousands of stocks in the markets, there’s only so many that are actively traded and recognized by millions of traders. Those are the names you want to keep on your watchlist.

Fortunately, we have already done much of this work for you! Members of the Warrior Trading community can can find a comprehensive trading watchlist from the following page:

https://www.warriortrading.com/arshs-trading-watchlist/.

If you are not already a member, you can trial the watchlist by signing up for a 5 day chat room subscription for $5 here: http://www.warriortrading.com/free-day-trading-chat-room/

This is the same watchlist we flip through on a daily basis to help locate both day and swing trading opportunities, and we think it will be a fantastic starting point for you. We have included what we have found to be the hottest stocks in the large cap stock market in that list, and most of the trade ideas are derived from that watchlist.

Do you Need Scanners?

We are commonly asked whether we use scanners to help us locate trading ideas. Although they can be helpful in many situations for helping to locate trading opportunities, they are not necessary. Scanners tend to be unable to locate the types of precision technical analysis patterns that we like to look for. Those are best identified by scanning through charts.

We also feel there is much more benefit in developing a comprehensive watchlist of stocks that can be reviewed daily.

Not only will that help you become more in tune with the markets and allow you to have a better sense of what is happening on a day-to-day basis, but you can be rest assured knowing great trading opportunities will present themselves on your watchlist. It helps alleviate the pressures of finding a new stock to trade every day.

Technical Analysis Strategies for Swing Trading

Swing trading can be practiced in two ways: fundamental and technical analysis. The method we encourage you to use is technical analysis, which can provide you a very effective edge as a swing trader. Fundamental analysis is important for long term investing, but it is not effective for short term swing trading. Short term swing trading is done best utilizing technical analysis.

Before performing technical analysis to locate swing trading opportunities, it is important for you to be able to read and understand the proper timeframes, which includes the daily and 60-minute charts.

While other time frames may be used, these are the most common time frames used by swing traders and, in our opinion, the best swing trading ideas in the large cap market can be located on the daily chart and 60-minute charts. The daily chart should always be your starting point for analysis, as it will help you to recognize what is happening with the stock on a macro level.

We are able to locate strong technical patterns, such as bull flags, bear flags, and consolidations, quite often on the daily chart and 60-minute charts. When the pattern is taking place over a shorter period of time, it’s best to view the 60-minute chart in order to analyze the setup in more detail. Developing the ability to analyze multiple timeframes will help you to understand price action and locate technical patterns that can lead to very high probability trading opportunities.

We use the strategies shared in the Warrior Pro course, chat room, mentor sessions, and watchlist page to locate swing trading opportunities. We like to look for consolidation patterns, such as bull flags and bear flags, as well as major trigger points, such as flat tops and flat bottoms, which can help fuel major breakouts and breakdowns in stocks. This is considered a momentum trading strategy that is looking to benefit from the existing trend of the stock.

You can find examples of the types of daily and 60 minute opportunities we like to look for by visiting the watchlist page and scrolling down: https://www.warriortrading.com/arshs-trading-watchlist/.

Rule of Thumb

We prefer not to trade against an existing trend, which is considered reversal trading. The general rule of thumb is to go long only if the price is up trending, and to go short only if the price is down trending. By following the existing trend in place, you will substantially improve your odds of success as a trader. The trend is your friend!

For example, a stock may move up 10% in a day and then proceed to consolidate sideways over the next few days. We would look for a proper consolidation pattern, such as a bull flag and bear flag, or trigger point that we believe can spark a breakout or breakdown in the stock and fuel further continuation in the existing trend of the stock. The trigger point can be in the form of a support, resistance, or a trendline level and should be used as your entry for the trade. When traders 

 Technical analysis is the key ingredient in helping us to locate proper swing trading opportunities, and it is very important for you to develop your skills in technical analysis to succeed in the markets. It is important to note that technical analysis is an art, not a science. It is critical to incorporate strict risk management rules in order to succeed in technical analysis trading.

Swing Trade Execution

 Once you have located a proper trading opportunity using technical analysis, it’s time to execute the trade. This is the most important part of the process, and you should have a strong set of rules for executing and managing any trade you take. There are various rules we personally follow when executing any swing trade.

The most important rule we like to follow when executing swing trades is to begin the trade as a day trade, with a breakout, breakdown or bailout methodology. Depending on how successful the trade is as a day trade, it can then be considered for a swing trade. When initiating a swing trade after a stock crosses the trigger point, we want to see strong continuation in our favor immediately. If the trade does not provide us an immediate breakout or breakdown past the trigger point, and instead begins to reverse against us, it should be taken as a signal to exit the trade.

When a swing trade idea does successfully work as a day trade, the cushion earned from the day trade can allow you to turn the trade into a swing trade. This is known as the breakout, breakdown or bailout methodology. It is not recommended to hold on to a swing trade overnight if it is not substantially in your favor by the end of the trading day, as you are exposing yourself to the risk of loss. This places major emphasis on locating proper breakout and breakdown points, which when done successfully, will allow you to properly time effective entries into momentum swing trading opportunities. 

 Furthermore, it is very important that you are executing on your predetermined stop losses and profit targets as the swing trade hits one of them. By having stop losses and profit targets in place before the trade, you will help ensure that the trade is executed according to a plan. Having a plan and following it consistently is the best way to find success in the markets.

One of the main benefits of creating a plan with proper stop losses and profit targets is that it helps alleviate the stress of the trade. Developing confidence in your trade and following a plan is a very effective way to diminish the emotional impact of trading. Instead of feeling like a deer in the headlights, you will be able to trade with comfort, confidence, and rationality.

Trade Management

Because successful swing trades can continue to move in your favor for days and potentially even weeks, it’s very important for you to learn how to properly and effectively scale out of your position. Scaling out is the art of selling your position in multiple orders, which generally helps to get a better average exit for the trade. Swing trades can last for days and weeks, so it’s very unlikely you will get the best exit price on a single order.

Scaling out can help you to achieve a better average exit price for your swing trades over the long run. Traders generally scale out in 3-4 orders, but you are welcome to use more scale out orders if you find it to be helpful.

Swing trading requires you to combine your skills in tracking a watchlist, performing technical analysis, executing your trade, and much more. As with other types of trading, emotional management is critical to your success as a trader. Emotion tends to be the number one reason traders fail at trade execution. It holds traders back from exiting their trades at the necessary moments, but developing a proper strategy and following rules are a great way to eliminate the emotion of trading.

The more systematic you can become, the more consistent your results will become! From its surface, swing trading can seem challenging and risky, but let us help you discover that this is not the case! Swing trading can be incredibly lucrative and fun when executed with a proper strategy and ruleset.