| Swing trading sits in the middle of
the continuum between day trading and
trend following. Swing traders hold a
particular stock for a period of time,
generally between a few days and two or
three weeks, and trade the stock on the
basis of its intra-week or intra-month
oscillations between optimism and
pessimism. Sign Up for the Free Investment Newsletter>>>> Much research on historical data has
proven that in a market conducive to
swing trading, liquid stocks tend to
trade above and below a baseline value,
which is portrayed on a chart with an
exponential moving average (EMA). In his
book Come Into My Trading Room: A
Complete Guide to Trading, Alexander
Elder uses his understanding of a
stock's behavior above and below the
baseline to describe the swing trader's
strategy of “buying normalcy and selling
mania” or “shorting normalcy and
covering depression.” Once the swing
trader has used the EMA to identify the
typical baseline on the stock chart, he
or she goes long at the baseline when
the stock is heading up and short at the
baseline when the stock is on its way
down. |
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