Swing trading is a term better defined by what it is not. First off, swing trading stocks is not day-trading. All respect to those hearty individuals who spend hours each day deciphering the subtleties of the tape to gain ticks and 1/4s. But day-trading is an art form with a learning curve that may require years of intense effort, and a peculiar mind that can stay as focused as a railroad track whatever the distractions.
Most of us have neither the time, nor the energy, nor even the inclination to become successful day-traders. Consistency requires a total commitment. What then is at the other end of the spectrum?
Buy and Hold has been the mantra of finance professors for decades. Any number of academic studies will show that buying a “good” company in a “good” industry will produce an average annual gain in their common stock over a long holding period. They are not wrong, but Buy and Hold begs the question of what is a good company and in which which industries, and how long does “long” have to be? Swing trading cannot be the same as Buy and Hold.
Option Swing Trading is buying and selling options on stocks and ETFs for an expected holding period that could last from a couple days to a few weeks. Your decision inputs are volatility, market location, direction, and the rate of change of price. Qualifications about the company or the industry are not considered except as they may relate directly to certain events like earnings announcements. You take what the market gives you on that trade and then you move on to the next trade. You have no allegiance to any company or stock other than for its consistency as a trading vehicle.
The successful swing trader is as comfortable on the short side of the market as he is on the long side, and with selling option premium as with buying calls and puts. Trends do not continue in either direction forever. Giving up on selling option premium and the short side before the game even begins not only deprives you of many trading opportunities, but it also creates a subtle mindset that is always hoping for, and fashioning the possibility of, a new bullish trend regardless of evidence to the contrary.
What then is required to become a successful swing trader?
You must determine when the stock or ETF of interest is trending, and whether the trend is gaining or losing momentum or has moved into a favorable market location within its Trading Range. The concept of trend is straightforward enough but it still remains the source of immeasurable angst, especially among novice traders. The individual trading style you develop, and every swing trader is an individual, will likely flow from how you come to characterize trend.
Based on your analysis of the state of trend you can then devise an objective strategy consistent with your trading style that clearly defines set-up conditions, entry rules, risk-management rules, and exit rules.
When you come down to it, all the chart styles, indicators, and fancy studies in Options Master Chartist are here to help you determine the state of the trend and the location of the underlying within its Trading Range, and to make an objective and reasoned decision of what you should do about it. The trading methods already built into Options Master Chartist almost force you to have a trading plan and to follow the rules.