With the growing volatility in the global financial markets, swing trading is gaining momentum. The fundamental part of swing trading is to sell short as prices fall almost twice as fast as they rise. There are some perceived drawbacks associated with selling short such as the idea of losing more than 100% of capital and hope of an upswing, if it is not realized then the stock becomes a long-term investment. The author says that a swing trader tries to grind out a series of small profits and losses, all the time preserving his capital waiting for a substantial swing or linear phase to unfold when a succession of winners can be put together.
However, the most critical part of swing trading is identifying the linear phases; many of the phases are marked by themes and crises, such as dumping the old economy stocks, Asian crisis, Russian debt crisis, and default of Long-Term Capital Management (LTCM). Marc, the author, is not sure how to identify the linear phase in advance but feels that it is possible to detect it when one is in the middle of a linear phase.
Revealing his approach towards swing trading, the author prefers equity index futures to the individual equities, to avoid company-specific risk. He advises us not to look at stocks outside those of the biggest 50 or so companies due to little solvency risk and high traded volume. However, swing charts work well with the active stocks. |
