In this post, I want to talk about swing trading.
Question from Kevin: I’d like to ask you what’s your time frame for swing trading? 6-8 weeks? I currently have an identity crisis in terms of my trading style. I realized if I transition from a swing trader to a position trader, I would make more gains at the expense of being able to execute less trades.
Here’s what I have to say about this.
The definitions are firm. There are definitions for specific rules, such as stop sign.
You have a stop at the stop sign; it means full stop. It doesn’t mean slow down, look both ways, and keep going.
The same thing here. If you look at it really as a definition, yeah, six to eight weeks is a typical definition. But the reality is when we look at something, it also depends on market conditions and volatility. The whole point behind swing trading is letting a run as far as possible in that trend or at that moment. That’s the whole goal or point.
Apple Stock Weekly Chart
Here we had a pullback. If you were to look at swing trading in this stock somewhere around 2017 well, that swing trade could be a two-year hold if you’re on the longer timeframe. If you’re looking at things on a weekly basis.
However, if you’re looking at things on a daily or daily basis, a swing trade could be that right here.
This is what I’ll say most people do. Let’s say you have that breakout in August. And you let that run continue until about September, and that’s when things stall out.
That happens because if you’re running for 4-6 weeks to the upside with minimal pullback eventually, you’ll get a few of those red days or where things start to pull back. That’s why they have that in that definition. Now, it can be longer depending on if you’re taking profits into strength.
Let’s say you get into a stock a little bit earlier. And things go up, and you take half of your position off somewhere after a couple of months.
And you have a pullback, and then you add to it well you ride and keep working that swing trade.
You have that initial position that was very good. It’s not an ideal answer for you. Maybe it’s not as specific of what is a swing trader, but you look at it as a portfolio whole as a lump sum. If you have $10,000, you can use $2,000 for speculative trades. Another $2000 might be in cash reserves. $2,000 might be in long-term investments. Another $2,000 could be in swing trading.
If we take out the swing trading definitions, you know look at it as whole time. Some of them are going to be as long as possible. Other trades, your total portfolio might be a little bit shorter. Some will be even shorter.
You have a few trades that might be a very short timeframe. And some trades probably somewhere in between there. You have a mixture of whole times, and that also means position sizing, and that’ll help mix things up.
But you don’t have to be any single one trader because then you’re confining yourself into the box. I always say when it comes to learning about anything that you only believe 50% of the things that I say, and then the other 50% learn on your own. And gather additional insight because that way, you’re open to new things. That way, you’re open to embracing other ideas and concepts.
If you’re just 100% all-in swing trading, day trader or day trader penny stock with options, you’ve specified yourself that you have no room to diversify your income.
Specificity is essential when it comes to:
- choosing a business
- choosing a niche
- targeting a customer
However, when it comes to investment, diversification is the right approach because you’re looking at sustaining your capital.
Anytime you get a pullback; you’re looking to preserve that capital.
I hope that gives you some ideas and perspectives on swing trading, trying to figure out your identity.
You don’t have to be one individual in the markets. You could pick one thing and do it time and time again. But remember, as far as your cash goes, allocate it into a few different spots.