Remember the 90s?
I do. Maybe you do too. I don’t know.
That was back before my time as a full-time trader, but I do remember that the hot thing in trading in those days was the so-called swing trading.
It was all brand new — day trading just took off a few years prior — so there was a lot of trial and error that went into it. There were a few swing trading for beginners books but they weren’t very useful.
The problem with the business model was the owners themselves didn’t know much about trading, and as a result, they couldn’t teach the students how to trade. So it was loser watching loser and no one made money.
But that was then. These days, swing trading is a tried and true strategy, and it’s one that every trader needs to understand.
First, what is swing trading?
It’s a strategy that uses technical analysis to collect quick, regular gains over a period of a few days to a few weeks.
But how do you do it?
Here are my top swing trading tips for beginners…
Always follow the major trend.
Don’t be the hero. Don’t swing trade against the main trend in the market, even when your trades go against you. They tend to gravitate towards the main trend, so going in that direction from the start can save a bad trade from being a loser and will increase the odds of trades going your way.
Consider a stock that’s heading down sharply and wait until a positive story comes out. The stock will rally for a few days, act like it’s moving up, and then fall once again in the direction of the main trend. That’s the side you want to be on at all times.
Don’t trade dead markets.
Swing traders and day traders make money when markets are volatile. Trading without volatility is like trying to drive a sports car in bumper to bumper traffic: it doesn’t go anywhere.
So you need to avoid trading during holiday seasons, before earnings announcements, during the lunch session and all other times when markets are dead.
Watch the volume to make sure it’s been steady for the last week or so, and don’t forget to check your schedule for news and reports. This is the number-one source of short-term volatility for swing traders.
Trade both sides of the market.
There have been many opportunities when I was starting out when markets would turn on a dime and reverse direction. I would liquidate my long position but would never initiate the short and would lose out on extremely valuable opportunities.
Remember, markets drop 3 times faster than they rise. This is because fear is a stronger emotion than greed, so you literally will lose.
Always pay attention to correlation.
When I first started my trading career, I focused on many stocks that were part of the same industry group, mainly tech.
But these stocks have a correlation to the market of about 70% and about 80% to each other. They’re all too close.
Trading highly correlated stocks is the same thing as doubling your position size. Don’t do it. Make sure you do simple correlation analysis and make sure the stocks you’re trading or the markets you’re trading don’t have a high degree of correlation to each other.
Have you ever tried trading with dual moving average crossovers? Confusing term, simple execution. The moving average is one of the oldest and most often used indicators for trend following markets, and there’s a way to use two of them together that’s a powerful trading tool. Take a look.