Swing trading momentum stocks is a fine art. It requires sound risk management, a ton of patience, and mastery over your emotions. It's not like day trading where everything is resolved in a few hours, and requires a very different mindset. All traders should know how to swing trade as outlined in this article. Here are 4 rules for swing trading momentum stocks that will help you improve your trade management.
1. Set it and Forget It
Successful swing trading requires extreme patience. You don't want to be watching every tick. After you enter the trade, it either stops you out, or it hits your first profit target. Those are the only two outcomes that can happen after you put on a trade. Micromanaging swing trades is one of the worst things you can do for your trades. Not only does it make trading a lot more stressful than it needs to be, but it will often cause you to take early profits or stop out early because you got emotional from watching every single tick. It's much easier just to set price alerts near your stop loss and your first profit target, and then forget about the trade.
2. Focus On Higher Time Frame Trends
In swing trading, the 5 minute chart is mainly noise. You want to be focusing on hourly, daily, and weekly charts. Smaller time frame charts will take your focus away from the more macro trend of the stock. It is important that you align your trades on all of the higher time frames before entering your trades. You do not want to play a breakout on a 60 minute time frame when it is running right into daily resistance.
3. Use MA’s to Manage Risk
Daily chart moving averages are an easy way to identify a stock’s trend. For swing trading, they can help us manage our risk and find better entries. Momentum stocks will often pullback into their moving averages (usually the 20 or 50 MA) before making their next move. One of our favorite setups is playing the moving average remount. Trending stocks will often briefly trade under the moving averages after they pullback after a big push. When the stock goes to continue its trend, it will reclaim its moving averages and continue to push.
4. Take Partial Profits
A lot of strong momentum stocks will trend for weeks and even months (especially in this crazy bull market). If a stock hits your first profit target, it's a good idea to take some profits to pay yourself, and leave some shares for a bigger move. This will allow you to let your winners run, while paying yourself in the process. This will help you become less emotional as well, since you have less of the "I should have took profits there" thoughts.
Swing Trade Service
This swing trading service is great for those that work and can't monitor the computer all day. We have in-depth nightly reports on the gameplan for the day/week and all stock picks that I trade will be alerted and emailed to you.