Swing Trading Strategies - Swing Trade Strategy
WHAT MAKES A REALLY GOOD TRADING STRATEGY?
Part 1
Ask most NEW traders, and they will tell you about some moving average or combination of indicators or a chart
pattern that they use.
This, as the more experienced trader knows, is important and can give you an entry point but on it’s own, it is NOT a strategy.
Any trader who
is more experienced will say a strategy should also include your time frame, money management, risk control, perhaps stop losses and of course, an exit point.
Trade Entry, Time Frame, Money Management, Risk Control, Stop Losses, Exit
ENTRY
There are so many ways to determine a possible entry point it is impossible to count them. You can use moving averages, trend lines, chart patterns, candlestick
patterns, support/resistance levels and a wealth of technical indicators. And that’s apart from any fundamental analysis (profits, dividends, PE ratios etc) you might care to do.
In fact there are so many ways of choosing an entry level that it is beyond the scope of this article to go into them. Strangely, this is also one of the LEAST important
aspects of a good strategy.
TIME FRAME
You need to decide if you want to be a Buy and Hold investor or a shorter-term trader. Day Traders will have time frames in
minutes. Swing traders will look at a few days or weeks for a trade.
MONEY MANAGEMENT & RISK CONTROL
Essentially, you must look at how much you are prepared to trade
with, how much you are prepared to risk on each individual trade and the size of your trades. The objective is to preserve capital if trading does not go well because once you are
out of capital you simply can’t trade any more.
STOP LOSSES
Probably the hardest part of trading and it is always a compromise. Some traders do not use stop losses at
all. My firm belief is that you absolutely must or you will have little control over your maximum trade risk. Where to put your stop loss must be an integral part of your strategy
and once you decide, you must stick to it.
EXIT POINT
There are two basic methods of deciding when to close a trade. You can exit at a calculated target price by using
various technical tools including Fibonacci retracement, projections from chart patterns and many others. Or you can use a trailing stop and just stay in the trade until you are
stopped out. Both of these methods have their merits and downfalls.
So
those are the basic ingredients of a strategy. They are important BUT, those are
not the only things that make up a REALLY GOOD trading strategy.
There
are two other vital ingredients. One of those things we will cover now... Your
Trading Personality, and the other
The Stocks' Personality, is
covered in Part 2
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