What Is SWING TRADING And What It Can Do

In a nutshell Swing Trading is best described as buying a stock or ETF(Exchange Traded Fund), holding it for a short amount of time, and selling it for small to large gains. It is similar to day-trading except that day traders buy and sell a stock within the same business day. Swing traders buy a stock on one day and at least hold it until the next day hoping to capture better returns on a more stable stock. As a swing trader you are looking for companies who's stock is already in a rather consistent and steady uptrend. Meaning its value is constantly moving up over the long term having only slight pullbacks from time to time. 

Checkout the chart below. It is one of my favorite stocks to swing trade, or as I like to say, FLIP. You know, just like you would do as a real estate investor. You would buy a property, fix it up a bit, wait for the value to go up, and sell it for a profit. That's called flipping houses. We are flipping stocks but we don't have to "fix" anything for the value to go up. We let the market take care of that. Back to the chart now. If you'll notice over the past ten years the trend has been up. Actually, if you were to expand this chart all the way out to the stocks beginning back in the mid 1980's you would see that the trend has almost always been up except when the overall economy had major pullbacks in 1999 to 2002, and again in 2008 and 2009. In the time periods between these pullbacks traders made quite a bit of money trading MSFT. They will buy it, hold it a few days or weeks then sell it for whatever gains they made only to buy it again at possibly a slightly lower price thus compounding their gains as they repeat the process. Looking at the chart can you see how this would be possible to do hundreds of times (if not thousands) over the past ten years? If you answered "yes" then you need to know that this is only one stock out of hundreds that have trends like this. You just have to look for them. 

If you are new to trading and are cautiously getting your feet wet starting with only a few hundred dollars, you need to find a stable stock and trade it several times only selling when you have gains. How much in gains? Well, that is totally up to you. Positive gains, no matter how big or how small are still positive gains. Never be ashamed of taking small gains. I do it all the time and some times it is necessary. No shame in that game at all.

Since I mentioned compounding gains let me just show you what that could look like. When I started trading and investing several years ago I had a goal of  accumulating $1,000,000 and putting it all in stocks that payout large dividends each quarter for my retirement income. With that million dollar goal I needed to know just what it might take for me to acquire this amount of money by making trades in the stock market. Below I break down some of my thoughts on it:

1. First of all, would I be disciplined enough to make one million $1 profits if that was all I was ever able to do consistently? If so, what would this look like? It wouldn't be pretty or even worth the effort. It is the equivalent of making one million $100 trades at a 1% gain. It would be simple to do as a daytrader, but not a very productive way to get to your goal, so lets look at some other options.

2. If you have $1000 to trade and you could make consistent 10% gains on your swing trades, you are only 10,000 trades away from your goal. This number is assuming that you never trade with your gains. Trading with your gains will greatly increase your profits. Example of that is coming up.

3. If you have $2500 to trade with and you can consistently make 5% profits on your swing trades, you are now only 8,000 trades away from your goal, again assuming that you are not trading with your earned profits and are only trading with your original $2500.

4. One more thought is trading with only $5000. At a very easy 3% per swing trade you are only 6,666 trades away from the goal. At 5% gains you only have 4,000 trades to make. Sounds to good to be true? Well, it is possible, but not very probable. These are only examples to help newcomers overcome there fear of getting started. Napoleon Hill said, "Whatever the mind of man can conceive and believe, it can achieve." I believe this to be a true statement.

5. In my next blog post titled "The Power of Compounding Stock Gains" you will see what you can achieve with a recipe of time, consistency, and persistence.