My 13 Easy Steps That Will Make you a More Profitable Swing Trader
Hi there Real Life Traders from around the earth. How are you during this tremendous time of which you are reading this article?
I had a trader last week request I do an article on my â€˜steps to identifyâ€™ a swing trade.I created an article like that for day trading so I figured, letâ€™s crush one for the swing trade approach as well.
Of course, this information is not the alpha and omega. This is just my steps, my perception, what I look for. I mean, it works. I do well using the below steps, but it is not the holy grail. Nothing is. Use this as a guide to give you a solid understanding of where to go and what to look for and why.
Step 1: Get in front of your computer or mobile device.
Step 2: Pull up a stock.
So, which stock do you look at? It doesnâ€™t really matter honestly. There are over 10,000 stocks and companies to choose from. Can you run a scan?! SURE! Scans are (in my opinion) for the more advanced traders. Why? Because through experience, wisdom and knowledge they likely already know what to scan for. These metrics they have built and tweaked over time. Plus, when you run a scan, rarely will you come up with only one stock. You have to sort through the list and find the 3-4 that you really like. If you are taking more than 3-4 positions, you likely have a larger account anyway and probably are not a total beginner.
If you do want to scan for swing trades, you can use Finviz.Your broker probably also has scanning functionally…bottom line, scanning is the least of your concerns. You could pick a stock that I am always bullish on.
You could choose from any number of companies you interacted with over the last 7 days. Companies like Verizon, Netflix, Colgate (you brushed your teeth recently I hope) Johnson and Johnson, Wal-Mart, MacDonalds… you get the idea.
Step 3: Pull up the daily chart and put at least 4 years of data on your chart.
Step 3A: Determine the trend.
My secret to this is easy. You have 2 seconds. Is the stock going up, down or sideways.
The â€˜scaryâ€™ part about a â€˜bearish trendâ€™ is most people think the stock â€˜HAS to reverseâ€™. First, ugh, no. Nothing has to do anything.
Granted, some can offer exceptional times to â€˜buy low and sell highâ€™. AKA, buy in an accumulation phase, hold for 2-3 years and make killer profits.
Sure, this can certainly happen. Itâ€™s much easier when you know what the company does, you use their products, you like the company, other people like the company and they make more money than they spend. In situations like this, sure keep an eye on a stock thatâ€™s very low. Iâ€™ll cover soon how to play this.
Once Iâ€™ve determined my trend from Step 3A ~
Step 4: Determine YOUR TIME FRAME.
This means am I looking at investing in this stock long term? (Long term to me is more than 1 year)
Am I considering a longer term swing trade (a few weeks up to a few months?)
Am I considering a shorter term swing trade (a few days up to a few weeks?)
Am I considering a day trade? (Seconds, minutes or hours?)
How do you choose the above? Well, that my friend, is up to you. ;-) It often depends on how much money you have and your experience level. If you need guidance, coaching or mentorship I will certainly do my best to help. Reach out to me, firstname.lastname@example.org and we can schedule a time where you and I chat about it. Because once you determine your time frame, the next step is…
Step 5: Determine your instrument (aka strategy)
This is simple. What are you trading? Stocks or options? Or a combination of both.
Step 6: Pull up a monthly chart to see if you are at all all time high, all time low and get an idea of what the stock is doing.
You donâ€™t have to do this all the time.Once you pull up a monthly on a stock, itâ€™s not going to change very often. ;-) Youâ€™ll probably memorize what it looks like and youâ€™ll know if the stock has higher to go (before hitting a previous resistance), if the stock is at an all time low, if the stock is at the top of a roller coaster track or if it looks buyable.
This is important:
A monthly chart can or should help you determine if this is a good spot for a long term investment (from step 4 above).
If the stock looks like this you probably should rule out any longer term buying.
If the stock looks like this you probably should rule out any longer term buying, because there is zero signs of life.
Therefore, longer term charts can help you determine your time frame.
I and many before me, have encouraged investing in stocks for the long haul. Even if itâ€™s $2,000 a year. Put something into the market for the long haul.
Now, once Iâ€™ve determine my time frame for the trade (which for this write up is a shorter term swing trade [days to weeks] I do the following.
Step 7: If it is the first time I am ever pulling up the chart, I draw my support and resistance lines on the monthly. 2-3 lines at obvious locations. Just like this on IBM.
There is really no need (for now) to draw any lines on the above chart down at $44 because… do you really think the stock will get down there anytime soon? Probably not….
Step 7A: I then draw additional support and resistance lines on the daily chart with 1-2 years of data showing on the chart. This is the most recent data. AKA, the most relevant.
If you want to use different colors, you certainly can. Here is an example.
I get questions ALL THE TIME about â€˜how good are my linesâ€™ or â€˜are my lines right?â€™ or â€˜how do I know where to draw themâ€™.
All I can say is, no one has the perfect lines. No one knows exactly where the most important lines are. They key is to have a few good ones.
Hint: I look for large gaps and strong bullish or bearish candles to draw my lines. Places where the stock obviously stopped moving.
After my lines are drawn, I go to:
Step 8: Zoom in a bit more and find some gaps. Decipher the gap types.
Youâ€™ll notice bullish gap and go #1 was strong. It happened in the middle of a support / resistance line and traded right into and blew past the resistance. And then there was another bullish gap and go. The trend got â€˜extendedâ€™, a (pull back, retest, retracement, rest, bounce, dip) was likely and thatâ€™s what we got over earnings.
A black candle gapped down (bearish retest gap) into old resistance new support. The support held and that is the location where you would have went long. Why? Because there was some support from the bullish gap and go #2 and it was a old resistance, possible support price.
Once you have the gaps, you can then go into:
Step 9: Pull up the 10/20/50 ema on the daily chart
If these moving averages are below the stock and a moving average also corresponds with a price level, thatâ€™s a strong area to buy. Notice the red ellipse. That is where one would have gone bullish. Why? Because that is the pull back! Watch: What is the bounce.
Then, the next steps are just to make sure Iâ€™m not running into any obvious resistance I missed.
Step 10: Pull up the 100/ 200 sma on the daily chart.
The stock is above those. They shouldnâ€™t provide any issues or resistances.
Step 11: Pull up the 100/ 200 sma on the weekly chart.
The stock is above those. They should not provide any issues or resistance either.
Step 12: Set up the trade based on your time frame from above.If you are a â€˜longer termâ€™ swing trader, your set up is based on the daily. Something like this.And obviously you are hoping for a small pull back, some weakness to buy into and then of course, the rest is up to the market.
If you are a short term swing trader, your entry will probably be based on the hourly chart, like this.
Your job as a trader is to NOT WORRY about what the market will do. Why? Because you have zero control over that. YOU DO however, have control on how much you risk on any trade, when you get in and when you get out. I never initially worry about â€˜my targetsâ€™. My stop is always important.
Step 13 is: Placing a stop where I can hopefully lose less than 1R if the stock moves my direction initially OR just doesnâ€™t stop me out immediately, which will happen. Hereâ€™s an example of that. The pink line represents what the stock could do, might do. Itâ€™s just a guess really.
But, if I have enough instances where I lose small Iâ€™m bound to catch a nice winner at some point. Itâ€™s just probabilities.
Step 13A: Follow your plan.
Have some quantitative rules in your plan regarding
- How long you will leave the trade alone before you move your stop ( I suggest 8 days)
- Where to have your target initially ( I suggest 3R)
- How many swing trades to be in at once (I suggest less than 6)
- Literally donâ€™t worry about what it does. Your stop is in place, let the trade do what itâ€™s going to do. Those who care least, usually win most.
That is the general steps I take anytime I look at a swing trade. There can be some differences, like if the stock is at an all time low or in an accumulation phase and you want to buy it low. Something like DDD
The truth is, when you are buying a stock LOW… usually in an accumulation area, the moving averages will almost always be against the trade. Unless the stock has been in an accumulation for 3-4 years and is on the verge of breaking over all averages (Like BB)BB Chart #2
Trading these moves take a tad more skill and MUCH more patience. You might have to use protective puts rather than stops, to avoid being whipsawed. You likely will have to wait months or years for a SOLID, amazing run. Therefore, if you are a newer trader, it is usually much easier to go with â€œthe sure thing.â€ The trade and trend thatâ€™s already easily and visibly established and have a mentor or professional analyst and trader help you with the tricky ones. After all, you might be able to put air in the tires of your vehicle, but unless you are a mechanic, you arenâ€™t going to be the person that rebuilds your transmission.
Bottom line, itâ€™s ALWAYS a wise investment to seek guidance from mentors and those with more experience. Do your HW and ask them valid questions. You will often be met with loving and generous replies. (At least, thatâ€™s how we roll here at Real Life Trading!)
I hope this helps. AGAIN, if you have any questions, let me know.
Honestly, spend some time (about 50 hours) and watch all of the videos. They are free and I can assure you, they will help you on your journey to becoming a profitable Real Life Trader.
YOU ROCK!! Thank you so much for reading these words. Letâ€™s all go enrich lives together!!!
~ Jerremy Alexander Newsome
CEO of Real Life Trading and the guy with the most RLâ€Teeâ€ shirts