Swing trading stocks for beginners - what exactly do you need to do?
First of all, there's a huge difference between trading and the "buy and hold" approach.
When trading, you have a proven system and when swing trading, you're typically holding a stock for 5 to 20 days, so you have a rather short-term horizon.
Now on the other hand, when you're following a "buy and hold" approach, you often hold a stock for a month, years or in the case of Warren Buffett, maybe even for decades.
Not so with swing trading stocks.
Again, swing trading stocks, a short-term approach, following a proven system. But when I say, "proven system", what do I mean by this?
There’s 3 things that you need to know
First, when swing trading stocks, you need to know what stocks to trade.
Second, you need to know exactly when to enter.
Third, you need to know when to exit - and when exiting, there's always two ways.
It's either exiting with a loss, and you want to keep your losses small if the trade goes against you, or it's exiting with a profit if the trade moves in the right direction.
These are the 3 main things. What stocks trade. When To enter. When to exit.
Now let's talk about what stocks to trade
Most people think when trading stocks they should trade one of these 'mainstream' stocks and what do I mean by this?
For example, Tesla or Facebook. Netflix. Twitter. That's actually not very smart. And I'm going to show you right now why that is.
Let’s take a look at Tesla. Look at this. This stock is moving all over the place.
What do I mean by this? I mean it goes from 240 up to 360. Down to 250 again, up to 380.
This is crazy and here's why
Tesla and Elon Musk are in the news all the time. Elon Musk is tweeting stuff like crazy. You remember last year in 2018, he tweeted that he's taking this company private.
"I'm done with this. I'm taking it private." After he said he’d take it private at a price of 360, you’ll see on the chart that just overnight, Tesla jumped way up like crazy.
Then the S.E.C. said, "you can't do this" and the S.E.C. started an investigation.
After a while, they settled with him. But when they started an investigation, Tesla was plummeting.
Once they settled everything seemed to be good. Then Elon Musk tweets "the S.E.C... They are..." Whatever. So, he was publicly bashing them. And this is not what the S.E.C. and investors like, so they got nervous and by this, Tesla made lows again.
And that’s when they announced that there are production difficulties. There’s always something going on in the news and this is why it’s jumping up and down like crazy.
Now let’s compare Tesla to a stock that I personally like to trade
Look at this: CRC, nicely going up and down and up and down.
It has really, really nice trends. Now here's the deal. As you can see, it's not going up from the lower left to the upper right.
And it doesn't have to, because..
As a trader, you can participate in these short swings to the upside as well as to the downside. Yeah, that's true.
As a trader, when you're swing trading stocks, you can make money even if the market or the stock is falling.
The most important thing when selecting the right stock for swing trading is finding a stock that has nice swings.
Let me show you an example of 'not' nice swings. Twitter.
Mainstream, right? I mean, look at it. There's a gap, then it's railing all the way up. Then something happened and BOOM, it crashed down and down. This is all over the place.
Here's another example of a stock that I like: PEN.
I recently traded PEN and as you can see, it's nicer. Going up and down, and up and down like waves in the ocean. This is what you really want.
Now compare this to Tesla, which is all over the place versus stocks like W or PEN. Those are the stocks that I like to trade.
You have to make sure that you're selecting the right stock, and now you know not to select any mainstream stocks like Facebook, Twitter, Tesla or Apple. They’re all over the place.
You want to trade stocks that are a little bit under the radar because for example: CRC, I don't even know what they're doing. Nobody probably knows what they're doing, and nobody knows who their CEO is. Whatever the CEO is tweeting, it doesn't really matter.
Recap: 3 steps to swing trading stocks
1. You need to know watch to trade, what stock to trade and you want to trade stocks that are nicely going up and down, and up and down.
2. You want to know when exactly to enter and I'm doing this based on indicators. We’ll cover this in another article.
3. You need to know when to exit. When to exit with a profit when the trade goes your way, and also when to exit with a loss when it goes against you.
As you can see, swing trading for beginners is perfect and it can be fairly simple. Don't make it more complicated.
The beautiful thing is that when you're using indicators, you don't have to worry about all these fundamentals, PE ratios and EPS and so on.
Keep it easy. Keep it simple. That’s how you can succeed with stock trading.
As you know, we are doing boot camps all over the country. If you would like to know where we are next, go to bootcamp.rockwelltrading.com. It's free!