How long should you expect to hold a position for a swing trade? I suppose you could ask how pretty is beautiful and expect to get about the same kind of answer. That’s because there is no single right answer that can satisfy everybody. So, instead of wrestling with the abstract we did some elementary statistical analysis of the SPY daily chart in Excel to see if we could get something useful out of it to help answer the question.

Here’s the graph of our findings. It will make more sense as we explain what we did, and what the graph is showing.

First we constructed a 3 day bar, a 5 day bar, and a 10 day bar. With respect to the 3 day bar, and starting on Monday for illustrative purposes, that means that the bar open is Monday’s open and the bar close is Wednesday’s close. The high is the highest high and the low is the lowest low that occurred between that Monday open and Wednesday close. We followed the same procedure for the 5 day and 10 day bars.

Here’s the statistical part. For each synthetic bar we calculated a combined 10 period standard deviation of the range between the bar open and the bar high, and the bar open and the bar low. The lines on the graph show the 10 period arithmetic mean plus 1 standard deviation for each synthetic bar for the 5 month period of the data (December 11, 2013 to May 5, 2014).

The take away is that a 5 day holding period in the SPY for your swing trade will produce, on average, about 1 point more in price movement than a 3 day holding period. A 10 day holding period can be expected to sometimes produce as much as 4+ points more in price movement than a 3 day holding period. On the other hand, during periods of low volatility the 10 day holding period has almost no potential advantage over the 3 day holding period.

One other interesting observation is that as the point spread widens between holding periods it tends to keep getting bigger for the next several weeks, and conversely as it thins it tends to keep getting smaller for the next several weeks.

OK. We didn’t quite answer the question of how long is a swing trade but hopefully we did show that if you want to average more than 4 points on a SPY swing trade that you have to plan for longer than a 3 day holding period. That begs another question. How can you dynamically regulate your holding period? The answer is with stops, but that requires another graph.

There’s lots more information available from the statistical data than we show in the graph. For example, a 10 period average deviation instead of 1 standard deviation added to the arithmetic mean might show more reproducible results. We would probably also want to know the frequency of 2 and 3 standard deviation moves. They happen more often that you might expect.

One thing is for sure. A graph like this will become part of the Stock Rank routine.