>>SHARE TRADING TIPS > SWING TRADING
RJF logo
Share Trading Tips
share-trading.rjf.com.au
Australian Share Investing Blog

Share Trading Tips
>
>

 

Swing Trading - Learn to Trade Short-Term to Boost Your Profits

Swing Trading is an approach to stock market trading that uses short-term price movements as the basis for your stock trading system.

__________

Technical Analysis is based on the idea that patterns recur in the price activity of shares.

By charting the share price, we can identify these patterns as they begin to appear and get a good indication of the likely future direction of the price.

One of the technical analyst's most basic tools is the trendline

 

Drawing Trendlines

Trendlines are straight lines drawn on the share price chart to give a clear visual picture of the dominant trend of the price.

Trendlines applied to a chart of BHP

Down trendlines join two or more peaks in the share price. As long as the down trendline is unbroken, we can conclude that the down trend is still in effect.

Up trendlines are, of course, just the opposite. They join troughs in the share price. Again, the trend can be assumed to still be in effect until the up trendline is broken.

 

What about share prices going sideways?

Well, there is a kind of a horizontal trendline — the support / resistance line…

Support and resistance lines are horizontal lines marking prices where the trend of the stock price has often reversed.

Support and resistance applied to NCM

Support lines join troughs — they support the price like a floor, preventing it from falling any lower.
Resistance lines join peaks — they mark a price where there is market resistance to the price climbing any higher.

Eventually, of course, all trendlines are broken.

When the price is confined between lines of support and resistance, it's called a trading range. Trading ranges can offer great opportunities for share traders! Once we've identified the trading range, we can buy near the bottom of the range (once we've confirmed that the price has indeed bounced back off the support line, and not broken through it). And then sell at the top of the range. It's possible to do this several times in the same trading range, making respectable profits out of a share that's essentially going sideways!

 

The Joy of Trading Ranges

To illustrate, consider this chart of Lihir Gold Limited…

LHG trading range

Incredibly, LHG went from a price of $2.80 per share to $3.10 per share… no less than SEVEN times in less than a year! That's a rise of 30c per share (or over 10%). Doing that seven times in a year equates to a rise of 7 x 30c = $2.10… or 75% !

That's a potential profit of 75% for the year on a share that seems to be going sideways.

Now, this is just a simplified illustration — we couldn't possibly have foreseen every one of these opportunities— but it demonstrates the potential profits that are available to short term traders… and unavailable to long term investors who “buy, hold and forget” about their shares, hoping that they will appreciate in value over the long term.

 

The Biggest Mistake People Make Investing in the Stock Market

Profiting from trading ranges — and other market patterns — is only possible by charting the share price and keeping track of what's going on.

Most investors unfortunately let others do their thinking for them, and fall prey to market sentiment… in other words, fear and greed.

When the market is buoyant and prices are at all times highs, the media publicises the great gains to be made in the stock market… and people jump in and buy (greed).

When prices plummet and the news surrounding the market is all doom and gloom… people panic and sell (fear).

This leads to buying high and selling low. Hmmm… not a great strategy.

Of course, the best time to buy is when prices are low… exactly the time when most people hesitate to put money into the market.

To be successful at trading shares, we need to learn to be dispassionate in our approach to the market — to resist the emotions of fear (at lows) and greed (at highs).

Create your own charts and learn to apply your own swing trading analysis to them. Charts and trendlines don't lie and they don't get emotional — they just present facts.

 

Stock Market Guide to Using Leveraged Equities to Double Your Gains
introduces the power of LEVERAGE — with a warning!