A famous bank robber once said that he robs banks because that’s where the money is. Similarly, if you want to make money and make it quickly, you need to go where the money is: Wall Street. One of the most effective ways to make money off Wall Street is through swing trading. You can get rich through this form of short-term trading. The good news is that it doesn’t require fancy software or extensive finance and equities trading backgrounds to pull off. You just have to the right plan and mindset. Here is a general discussion on how you can take advantage of opportunities in the stock market through swing trading.
What is Swing Trading?
Just like day trading, swing trading is all about buying based on the momentum or trend of stocks. The most common way to make money, of course, is to buy low and sell high. You can short stock and sell high and buy low but this is harder to do for beginner swing traders. Regardless, swing trading is all about making short-term gains by betting on the momentum or trend of stocks. Unlike day trading where you bet on very short time frames like 3-minute or 5-minute time frames, swing trading can involve longer time frames like single days or several days. Instead of being glued to your computer monitor trying to cash in on a few fraction of a percent moves, you can pull down some decent money waiting a little bit longer. Of course, the wait time for swing trading is all relative. The amount of time you wait while swing trading is still much shorter than the typical trading strategy of a fundamental or value investor. Here are some key
Think of swing trading as betting on ships on an ocean. While the amount of money you make will be determined by the particular movements and activity of the specific ships you’re betting on, the overall condition of the ocean still plays a role in how your ships do. While this might be a small factor during most days, in certain days, like when there is a storm that is moving towards the ocean your ship is operating in, overall market sentiment can dramatically impact your particular swing trade positions. Pay attention to geopolitical events or central bank actions along with broad market news trends.
Determine different sectors’ sentiments
Your specific stocks’ movements are also affected by the broader industry the company you’re betting on operates in. Think broadly, look at related sectors. These might impact your stock’s industry and this can drive the stock up or down. Also, pay attention to long term trends within sectors. Negative sector sentiment allows you to prepare for a quick exit once your stocks’ numbers start trending toward a certain level.
The power of the right news
The stock market is all about psychology and perceived value. Sure, a solid earnings statement from the companies you’re covering have a great impact, but on the whole, stocks are influenced by momentum and trends. Pay attention to the news flow and volume regarding your covered stocks. Get ready to swoop in when certain conditions appear. On the other hand, get ready to sell when certain news trends appear.
Riding the market’s herd mentality
As much as Wall Street operators like to think they are original or creative thinkers, there is a lot of herd mentality or group thinking going on when it comes to stock trends. This is why it is important for you to beat the market and scoop up stocks before positive trends bump those stocks’ prices up due to Wall Street firms piling on a sector or a group of certain stocks. Ride the herd mentality and set your price targets. Once the market’s herd movement hits your target price, exit the stock and wait for an opportunity to enter the stock again after a fall or price consolidation.
As hinted above, you have to pay attention to industry trends and news to see which stocks are potential breakout stocks. These are stocks that are poised for a nice bump up in value. Usually, these are easier to spot than you think. You only need to look at the industry leaders in a given space, industry trends, and hot players. Take a good look at the news and stock price trend of these different stocks and you can see which players are approach break out status. Enter these stocks and give yourself a few days or even weeks for the breakout. However, if the stocks don’t reach ignition stage, don’t hesitate to drop them. Why? Opportunity costs. The more time you spend waiting for a stock to increase is time you could have spent making money off a more promising stock.
Create watch lists
Create a watch list of trending stocks. This is very easy to do with trading software. Keep track of their daily volumes and their daily high and low prices. See if there is a trend correlation between their volume and their activity. Correlate this with news regarding the stocks. Some news are actually quite predictable-earnings reports, for example. Keep an eye on your watch list and see how the stocks respond to certain news.
Setting limit orders to buy / orders to sell
Once you have set up your watch lists and correlated their movements with trends and news factors, you need to set up programmed orders on your trading software. Set up the price points where you’ll buy the stock. Once you’ve entered a position in the stock, swing trading allows you to set a short term (within a week) price where you can set up a programmed sale. This way, you’re not tearing your hair out as the stock you’re tracking fluctuates. Once it reaches your target price, your software can dump the stock and you can move on. Of course, this also works for automated selling once your watched stocks hit the floor price you set for them.
Swing trading can be quite lucrative. You need to keep your eye on many data points for you to make the right bets. Still, with the right amount of study and a systematic approach, you can earn quite a bit with swing trading. The key is to never get emotional.