Trading the markets day in and day out can be extremely challenging, especially as a new trader. If your just now entering the world trading, equities or Forex and feel like your being overwhelmed by strategies, tactics or just an overload of information you’re definitely not alone. Just like learning another language, learning to trade like a pro takes time and patience. One great way to gain experience and learn the ins and outs is through “swing” trading, or buying and holding positions for more than one day at a time. If your a new trader and want to jump into Day trading or buying and selling stocks with in the same day you might run into some challenges. First of all I don’t recommend anybody get into day trading without first learning how to read Level II.
Level II is the order book for any particular stock that your currently looking at. It gives you up to the second information about what the current price of stock is at where’s its headed and where its been in the short term. If you were to look at any individual stocks intraday chart you would most likely notice lots of fluctuations in price upwards and downwards habitually. Even in up/down trending stocks or currency pairs (FX).Day traders have to be able to read what each of these fluctuations in the price mean and be able to quickly calculate their course of action using their knowledge and trading methodologies. In other words they have to be extremely fast on their feet to hit their target entries and target exits as they sometimes trade tremendous share volume and its of upmost importance to execute their strategies all within the same trading day. This could be minutes into a trade or hours so the margin for error is very small.
However, there’s a much more even paced and relaxed way to trade,take your time, and learn the language of the markets and that’s through swing trading. Reading level II isn’t necessarily required to swing trade, because swing traders don’t profit off of the often smaller intraday moves.They try to capture a larger move that takes anywhere from a few days to weeks to years in some cases. For example if a day trader does his home work an believes his investment will yield 5% intraday he’s got to be in and out with good accuracy to get his 5%. A swing trader will do his home work and reference the higher time frame charts, study sectors and overall market conditions to enter the trade then wait for that 10% -20% move instead. This works great for smaller accounts mainly because of the much lower cumulative commissions they would have to pay in comparison to day traders. For example a day trader might make anywhere from 5 to 30 or more trades a week paying to enter and exit trades round-trip every time. Commissions range anywhere from about 4 dollars to 8 dollars per turn at most brokers,that could mean paying up to $16 round-trip for each trade. On a smaller account that could put a serious dent in the P/L. For example on a smaller account that takes a $1000 position it would have to earn at least 2% just to cover commissions. The preparation of finding the right set ups and opportunities to achieve that 2% gain everyday is of intense difficulty, add to that the fact that you need 2% just to pay for commissions makes it almost not even worth it, making it much harder and stressful to grow a portfolio then to sit on that position for that 10% at the end of the week.
Another aspect of swing trading that makes it an attractive option is the how flexible it can be. If you have a day job or other obligations an you simply cant be looking at every tick on a monitor swing trading could provide the kind of more controlled trading environment suitable for a more active lifestyle outside of trading. As a disclaimer however you should not look at swing trading as an “easier” way of trading but more so a different way of trading. There is still much preparation needed to enter trades, risk still needs to be controlled, price targets should still be tight and you still need to have a straight forward plan for each trade. Keep checking back here for more post to find out what I look for in a great swing trade, learn the indicators and read the markets or hit me up with any questions at swingape@stocksnatch. If you need help with reading level II contact the expert himself at firstname.lastname@example.org