The Hindu Business Line : Trader's Corner

We had discussed the scalping style of trading in last week. This week, we turn our attention towards another style of trading called swing trading. As the term denotes, swing trading is done to take advantage of one swing (or move) in the prices. The moment one swing ends, it is time to hop out, else you will end up in the same place where you started.

The time span of swing trades is generally between one-five days. Swing traders identify stocks that are about to make a sizeable move and take positions accordingly. Needless to say that technical analysis is imperative to swing trading. The entry point can be identified only with the help of technical indicators such as moving averages, oscillators, trend lines, trend channels and patterns, to name a few.

A comprehensive swing trading strategy would be made up of exit levels and stop-loss points besides entry levels. Stop losses are a must-follow money-management device. Once the stop-loss level has been keyed in to the system, the hours of vigil are considerably lessened. Stop-loss levels can be changed to trailing stops as soon as the trade becomes profitable.

The exit level, too, needs to be identified before initiating the trade. To ponder about the exit level after keying in the trade would be like the pilot deciding on the destination after the flight takes off. Traders would have to fall back on technical analysis to identify the stop-loss and exit levels. The price overrules time in swing trading as in other trading strategies. If the target is achieved in a day, it would be prudent to book profit and exit rather than to wait out the four days decided upon at the outset.

Stock selection in swing trades is another area that needs sufficient attention. It is better to swing trade in counters where liquidity is ample. Swing trading is also easier in pivotal stocks, as these stocks have discernible intra-day or intra-week patterns that can be exploited. One would need divine help to swing trade successfully in the cash segment in India. The settlement pattern would play havoc with all the well-laid plans. It is easier to stick to the derivatives while swing trading in India. In the all-too common instance of the stock deciding to meander sideways throwing cold water on the meticulously laid out strategy, the best course would be to exit the position as the time value of money, too, counts.

Lokeshwarri S.K.

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