Getting Started in Swing Trading

Swing trading means to hold stocks anywhere from one to five days and sometimes more. Swingtraders try to take advantage of certain “key” situations in a stock price’s movement. Such a situation would be a buy after a pullback into solid support during a longer term uptrend. Swing trading is an easy to implement strategy and is excellent for people who are willing to take overnight positions.

Before proceeding further, please understand how the trend is determined in any time frame. The article here explains the process.


Step 1: Define the Primary Trend of the Stock Market

This is best done on Monthly charts. Open the monthly chart for the Nifty. Employ any one of the tools and procedures explained earlier, to define the primary trend.

Primary Trend = PT = Trend as per the method used

Step 2: Define the Intermediate Trend of the Stock Market.

This is best done on weekly charts. Open the weekly chart for the Nifty. Employ any one of the tools and procedures explained earlier, to define the intermediate trend.
Apart from the trend methods discussed earlier, for the Intermediate trend, there is one more method. Apply a simple moving average with a value 30. This is the 30 week moving average. When weekly close is above the average, the trend is up, when weekly close is below the average, trend is down. Whatever method you use, use it consistently.

Intermediate Trend = IT = Trend as per the method used

Step 3: Define the short term Trend of the Stock Market. This is the trend that traders should be looking at. This is done on daily charts. Open the daily chart for the Nifty. Employ any one of the tools and procedures explained earlier, to define the short term trend.

Short Term Trend = ST = Trend as per the method used

At this point, after step 1 to 3, the trader should be aware of the trend in all three significant time frames. Please do not ignore these steps.

DECIDING ON THE TRADE DIRECTION


With clarity on trend in the three timeframes, a decision can be taken on the direction in which swing trades will be taken. It is here that the trend identified earlier will be used.



The second decision that the trader needs to take is to make a list of stocks in which he wishes to rade.

Once the trader knows the stocks he should be working with & the buy / sell action he needs to take, the rest of the trading process becomes mechanical. The Swing Trader now searches for setups or patterns which indicate if a trading opportunity exists in the desired trading direction.

These two issues, stock selection & setups are explained in seperate articles on Stock Selection & Setups for Swing Trading