SWING TRADING MADE

SIMPLE:
Beginners Guide to the Best Strategies,
Tools and Tactics to Profit from
Outstanding Short-Term Trading
Opportunities on Stock Market, Options,
Forex, and Crypto

By

Richard Godwin
 Table of Contents

Introduction

Chapter 1: An Overview of the Investment World

Where Did Modern Finance Come From?

The Many Different Ways You Can Invest Your Money

Investments that May Be of Interest to Swing Traders

Exchange-Traded Funds

Commodities and Futures Markets

Trading in Stocks and Bonds

Options Trading

FOREX Trading
Chapter 2: What is Swing Trading?

What is Day Trading?

Swing Trading vs. Day Trading

What Instruments Can You Trade In With Swing Trading?

Chapter 3: Market Signals

Candlesticks

Indecision Candles

Oscillators

Support and Resistance

 What Drives Market Momentum

Looking for Uptrends

Downtrends

Flags

Moving Averages

The Rule for Moving Averages

Types of Moving Averages

Exponential Moving Average

The Golden Cross

Death Cross

Chapter 4: 10 Top Swing Trading Strategies

Trendline Trading Strategy

Floor Trader Method

Supertrend

Gartley

Bollinger Bands and Dynamic Support and Resistance

Middle Bollinger Band FOREX Trading Strategy

CCI Moving Average Forex Trading Strategy

Picking Tops and Bottoms Trading Strategy Using ADX

Indicator

The Hull Moving Average

Chapter 5: Safe Practices to Protect Your Capital

Only risk 1% of your capital on a trade

Stop-Loss Orders
Have preset profits in mind

Diversify your investments

Chapter 6: Swing Trading Cryptocurrency

Finding an exchange

Actually managing cryptocurrency

Trading on an Exchange

Trading using Robinhood

Chapter 7: Options Trading

What is an Option?

Put Options

Maximum Losses

Tools to Use Trading Options

When are Options Out of the Money?

Time Horizons for Options

A Good Way to Learn Swing Trading

Buying Puts and Calls

Chapter 8: FOREX Trading Basics

How Currency is Traded
 Profits in Pips

Currency Pairs and Charts

Swing Trading Forex

Chapter 9: Top Beginner Mistakes

Having unrealistic expectations

Not treating trading like a business

Being too anxious

Failing to Plan

Looking for a get rich quick scheme

Being put off by all that math

Losing control with leverage

Not relying on multiple indicators

Chapter 10: How Much Money Do You Need to Get

Started

Minimal Capital Requirements

Consider Options Trading

Planning for Risk

Bottom Line – How Much Do You Need?

Using Leverage

One Danger with Stop-Loss Orders

Chapter 11: Exchange-Traded Funds

 Where to Buy Exchange-Traded Funds

Trading Options on Exchange-Traded Funds

iShares and SPDR

Summary

Conclusion
 Introduction
Welcome to Swing Trading 2019: Beginners Guide to Best

Strategies, Tools, Tactics and Psychology to Profit from

Outstanding Short-Term Trading Opportunities on Stock

Market, Options, Forex, and Cryptocurrencies!

In this book, we are going to introduce you to the exciting

world of swing trading.

Swing trading is an interesting middle ground between day

traders who take the most active role in trading along with
the highest risk, and traditional investing which for many

people simply means buy and hold until you’re retired.

Unlike day trading, swing trading doesn’t have large capital

requirements to get started, and it generally has lower

levels of risk than day trading. You can get more involved in

the market and look to make short-term profits, without

being in the heart pumping world of day trading, where you

can lose your shirt…in a day!

In this book, we are going to explain the basics of swing

trading for the newbie. After a quick overview of investing in

general, we’ll start by explaining what swing trading is, and
how it really differs from day trading. You’ll then learn what
instruments are best suited for swing trading, and how to

develop a plan and mitigate your risks.

Then we’ll cover the top strategies used by successful swing

traders. You’ll learn multiple methods, techniques to control

your risk, and the basics of fundamental analysis that will

help you estimate which direction security is heading.

Remember that any investing carries inherent financial risk.
Never risk more capital than you can afford to lose. The

techniques described in this book, while used by successful

traders, cannot guarantee profits.
 Chapter 1: An Overview of the
Investment World
In this chapter, we’re going to examine the world of

investing briefly. We’ll quickly discuss what types of

investments are available, and the different methods used
to manage investments, which include everything from

simply putting your money into a mutual fund, all the way to
being an active day trader moving tens of thousands of

dollars per day. Once we establish the general context, then

you’ll have a solid understanding of where swing trading fits

in.

Where Did Modern Finance Come From?

The history of financial markets begins with the concept of
debt. Borrowing has been regulated since ancient times.

Indeed, the first recorded instance of interest rates dates to

1800 BC, when a civilization in the Middle East known as the

Hammurabi began regulating loans. At the time, people

often borrowed money in order to purchase grain. People

were already charging interest rates, but at this time, the

authorities stepped in and imposed a limit on the interest

rate that could be charged. They set the rate at 33 1/3

percent. This simple development illustrates that by 1800

BC, mathematical finance was already coming into

existence. Various budding civilizations already had the

concept of principal, the amount of money borrowed, and

interest to be added on when the principal was paid back.

This basic form of debt and repayment of loans continues to

survive to the modern day.

Fast forward to the Roman Empire, and the notion of selling

and trading shares was born. The Romans often used

private contractors to perform government services,

including tax collection. The operators of these services

used a modern technique of raising capital – they sold

shares in the operation to the public. No doubt in those
days, only elites could afford to buy such shares, but as

soon as they become available, people began to trade the

shares themselves. This raises an interesting point. Stock

and trading markets are often viewed as a form of

“capitalism,” but ancient Rome certainly wasn’t a capitalist

society in the modern sense of the word. It seems that

trading things – even financial instruments – is simply a trait
all humans possess. Although the Romans began this

practice after the empire disintegrated, it didn’t continue,

and so it’s not seen as the root of modern finance.
To understand where modern finance came from, we fast

forward to the Middle Ages. During that time, trading fairs

became popular in Europe as a way for merchants to gather

and sell or trade their goods. Governments also looked

favorably on these trading fairs, allowing merchants to

escape the normal taxes and duties applied to the sale of

goods. It was here that currency trading and loans began,

with many merchants at the fairs simply trading money or

lending money.

At about the same time, lenders developed the concept of a

mortgage, allowing people to borrow money in order to buy

a property. Annuity contracts were also a large part of

finance in the Middle Ages — that is, a person could buy an

annuity and then receive lifetime payments in exchange.

Obviously, this would have only been available to a small

percentage of people alive at the time who would be able to

purchase the annuity in the first place.
Bond trading began in Italy during the 1500s. Governments
began to sell bonds, which would guarantee the holder of

the bond payments in the form of interest over the lifetime

of the bond. In the same way that people began trading

shares in Roman tax collecting entities, people began

buying and selling bonds.

During the age of exploration, when European countries

were busily launching sea voyages, the modern concept of

shares of stock was born. While it had some similarities to

the shares created during Roman times, as far as we know,

the idea was created independently in the 17th and 18th

centuries. Holland played a major role in early sea voyages

but putting together a sea voyage to distant lands was an

extremely expensive endeavor, beyond even the richest

individuals in Europe at the time. So in order to raise money

for these voyages, the Dutch East India company was
formed which sold shares of stock in the company. This was
soon followed by the development of the first stock markets.

It’s not a coincidence that the modern stock exchange was

founded in New York. When the Dutch owned what is now
New York City, the Dutch governor order a wall to be built to
protect the settlers from the British and Native Americans in
the area. Soon afterward, the location became a favorite

spot for traders, and of course, that has continued right

through today.

The Many Different Ways You Can Invest Your

Money
The modern world of finance and investing has been in
place in the same basic form that we know it today for more
than 100 years, although there are definitely new
innovations that open up new opportunities, like the

creation of derivative contracts and cryptocurrencies. Let’s

quickly review the ways that you can park your money and
hopefully earn something off the money. We will go from
more conservative (low risk) options to ways to invest that
carry more risk but offer far more reward.

Ever since money was invented, people looked for ways to

“save” money. It would be helpful to have money around in
the future in case you ran into an emergency, such as
needing to buy food. Or perhaps you didn’t earn enough

money to make a large purchase like a house, but you could

save a little bit each month and build up the funds over
time. While many fools have often stuffed money in their
mattress, the most basic way to save money is to open a

savings account in a bank. A savings account is one way

that a bank can raise capital so that it can lend cash to
others, so banks pay interest on the money in your savings
account. Interest can be seen as the cost of money, so the

cost to the bank is the interest that they pay you for parking
your cash in their bank. When you borrow money from the
bank, the interest you pay the bank is your cost of money.
Banks also have different ways to invest in order to earn

higher interest rates, such as money market funds and CDs.

Unfortunately, due to many developments over the past
several years, interest rates are quite low and putting your
money in the bank isn’t a good strategy for increasing your
capital.

From here we move to bonds. The safest bonds that you can
invest in are those issued by the United States government.
The federal government issues four basic types of
securities, treasury bonds, treasury bills, treasury notes, and

TIPS, which are inflation protected treasuries. A bond has a

face or par value and pays interest in exchange for the
money used to purchase the bond. An interest payment on

a bond is termed a “coupon payment.” The lifetime of a

bond is called maturity. That’s a date in the future when the
holder of the bond turns it in for payment. Of course, like
anything else, bonds are traded on secondary markets.
Treasury Bills: This is a short-term investment. These

bonds expire in terms of 52 weeks, 26 weeks, 13

weeks, 8 weeks, and 4 weeks. You don’t receive
regular interest payments with treasury bills. Instead,
they are sold at a discount, and then when the term of

the bond is over, you are paid the full par value of the
bond. To illustrate (with ridiculous interest rates),
imagine that a bond had a par value of $100. The
government would sell it to you for $75; then when

you collected on the bond, they would pay you $100.

Treasury Notes: A treasury note is a midterm bond in
between Treasury Bills and long-term investments. You
can purchase Treasury notes in terms of 2, 3, 5, 7, and

10 years. When you purchase a Treasury Note, you will

receive a coupon payment every six months.
 Treasury Bonds: A treasury bond has a long lifetime of

30 years.
The interest paid on bonds is often expressed as the yield.
The prices of bonds on secondary markets vary inversely
with the current yield or interest rate. Imagine that a bond is

issued that has an interest rate of 5%. Later, the interest

rate drops to 3%. The bond is now worth more money since
it pays a higher rate of interest than what a buyer could get
buying a brand-new bond. Therefore, a trader can play the

market by purchasing a bond at what they believe to be

paying a higher interest rate than what will be paid in the
future, and then they can sell the bond for a profit.
Conversely, if you buy a bond that pays 3% interest, and
later the interest rate rises to 5%, the price of the bond will

drop. The reason is that investors can buy new bonds and
get a higher interest rate, so they have little incentive in
buying an older bond that pays a lower rate.
You can buy and sell bonds directly, or you can invest in

funds that manage bonds. The value of the fund will

fluctuate based on its holding and the underlying situation
for each bond that we described above. You can invest in
mutual funds for this purpose or in exchange-traded funds

(see below). Investors who are conservative tend to use

investments in bond funds to protect part of their portfolio
(i.e., protect the capital against loss; you always get the
principal back with a bond). As people age, they tend to

move more money into conservative investments like

money market funds and bonds.
Next, we come to investments in mutual funds. Mutual
funds are securities built up by pooling the money of many

investors into a single fund, which can then invest in

different securities such as stocks and bonds. In fact, mutual
funds can invest in just about anything, including gold,
commodities, stocks, stock market indexes, and bonds.

However, these are investment vehicles used mainly by

conservative minded individuals who are planning for their
retirement. This is not going to be something a swing trader
is going to be looking at. Mutual funds are usually managed

by a supposedly “professional manager” who charges

expensive fees for the privilege, although these days
unmanaged funds with smaller fees are available. Mutual
funds don’t trade like stocks. Their price per share is settled
after the close of each trading day. So a mutual fund by
definition cannot take advantage of any price swings that
occur during trading.
Beyond this, there are retirement vehicles like 401k’s and

IRA’s that people who want to save up money for retirement

can utilize. These can be composed of stock market
investments, bonds, cash, and other types of investments.
Typically, most people don’t pay much attention to what

goes on with their retirement accounts, so they are not a

topic of interest for swing trading.

Investments that May Be of Interest to Swing

Traders
At this point, we’ve finished the ways someone with a
conservative mindset would invest their money. People with
that mindset are looking for a retirement savings account,
regardless of how that account is constructed in detail. A

day or swing trader, by contrast, is looking to profit from

short-term trends in the market. While someone putting
money in mutual funds can be seen as an investor, a day or
swing trader is more of a “speculator” that is running a
business for profit. Keep in mind that speculator does not
mean gambler. When you speculate on the market, you
make educated guesses based on real-world data and rules
about what that data means; you are not simply going with
a hunch in your gut and hoping for fast profits.

But before we get to day and swing trading in detail, let’s

have a look at someone who actively invests in stocks, but
is a “long-term” type of investor. This person may invest in
multiple areas, such as stocks and bonds and maybe even

metals, but they will do it with an eye on a long-time

horizon, or at a minimum of three to five years. Normally it’s
a horizon of ten years or longer. So, it’s a kind of variation
on the idea of building up retirement savings, except that

these people actively trade stocks and other investments.

For the most part, they will purchase investments with an
eye on the long-term outcome.
One technique that is used is “dollar cost averaging.” While

the day or swing trader attempts to profit from the wild

swings that the chaotic stock market makes on a routine
basis, an investor who uses dollar cost averaging aims to
smooth out those swings. As an example, suppose that you
were an investor who was bullish on Amazon. In that case,
you would buy a given number of shares on a monthly basis
no matter what was happening to the price. Some months
the price would be up, some months the price will be down.

The idea is to average out the ups and downs and profit on
the holdings in Amazon that you’ll have over a twenty- or
thirty-year time period. When you’re in retirement, then
you’ll slowly sell the stock to get cash to live on.
An investor using this type of strategy will use it even when

the market is crashing in a recession. Buying securities

during an economic downturn is, of course, an investment
opportunity since they are going to be worth quite a bit
more in the future. This will hold true in most cases,

especially when we are talking about a long-time horizon of

ten years or more.

Exchange-Traded Funds
Exchange-traded funds deserve a special mention because

as a swing trader, you’ll be interested in trading exchange-

traded funds nearly as much as a conservative investor. An
exchange-traded fund basically took the concept of a
mutual fund and turned it into a stock. So, it’s a pooled

amount of money used to invest in actual securities. One

example is SPY and exchange-traded fund that invests in
the companies that make up the S & P 500. Since SPY is
made up of the S & P 500, it tracks it quite closely. The pool

of money used to make up the SPY fund is divided up into

shares, which are then traded on the stock market in the
same way that shares of Tesla or Apple are traded. Unlike a
mutual fund, which is dormant during the day and has a

price settlement once each business day after market close,

exchange-traded funds are actively traded on the stock
markets. This makes them of special interest for both day
traders and swing traders. By using exchange-traded funds,

you can profit on everything from the Dow Jones Industrial

Average to gold or even real estate. You can also invest in
newer vehicles like BitCoin using exchange-traded funds.
Since exchange-traded funds are shares of stock, other than

noting what you’re investing in, they don’t require any

special treatment. However, as a swing trader, you can
profit handsomely from trading on movements of major
indices.

Commodities and Futures Markets

Commodity investing is essentially investing in raw
materials. These can be raw materials that can be

consumed immediately like pork, or raw materials that are

used as inputs to other products such as iron. Natural
materials such as oil, natural gas, or uranium – that is
energy sources – are also commodities. Metals like gold and
silver also fall under this category.

Commodities can change in price wildly over the short-term

and so make an attractive alternative for day and swing
traders. However, due to the large swings that can result in
massive losses of capital, investing in commodities is

recommended for advanced traders with a large amount of

market experience and isn’t recommended for beginner
swing traders. That said, how can you invest in
commodities?

The most direct way is to buy the material or good in

question. Then you could resell it later. To make profits this
way, you’d probably have to put up a large amount of
capital.

A more convenient way is to invest without having to own

the product in question physically. I am sure that you really
wouldn’t want to fill your garage with copper and then hope
that someone comes along to buy it.

One way that you can invest in commodities indirectly is to

buy into an exchange-traded fund that tracks commodities.
You can go online and look into the various funds that are
offered by brokers that have created exchange-traded

funds. Two of the biggest ones around are State Street

Spiders (SPDR) and iShares. There are many others, find the
ones that appeal most to you. The way you should do this is
by studying the past performance of the funds offered by

each company.
Exchange traded funds exist for virtually any commodity or
sector. You can invest in gold, platinum, or energy, for
example. You can also buy commodity stocks. Keep in mind

that sometimes direct investments in commodities will

outperform commodity funds or stocks, and vice versa. So,
it’s not an exact analog to owning the commodities and
trading in them, but it’s close enough for the vast majority
of traders, especially beginners.

Another way to invest in commodities is through futures

contracts. A futures contract is an agreement to buy or sell
a commodity at a fixed price in the future. So you can lock

in a price now and then buy or sell at that price later.

Obviously, this can have advantages if the price moved the
way you thought it would move, but if the price didn’t move
the way you’d imagined, you could incur huge losses. Of
course, many traders are simply trading the futures

contracts hoping to make short-term profits. You aren’t

necessarily going to buy a future contract hoping to buy
tons of corn. Of course, farmers will invest in futures
contracts for the actual sale of the underlying good. They

would do so to lock in what they see as a favorable price as

compared to what it might be at harvest time.

Trading in Stocks and Bonds

Most day and swing traders are going to be focused on

buying and selling stocks themselves, so investing in Apple,

Exxon, Microsoft, Netflix, and so forth. The basic idea here is
simple – buy low and sell high. Most of our discussion on
swing trading will focus on buying and selling stocks and

exchange-traded funds.
You can also engage in bond trading, but most will be
focused on stocks. You can even use exchange-traded funds
to trade bonds as if they were stocks.

Options Trading
Options are a simple type of derivative contract. In the
interests of swing traders, stock market options are what we
will concern ourselves with. An option is a contract that

allows you to have the right to buy or sell shares of stock in

the future at an agreed upon price called the strike price. So

in a sense, an option can be like a futures contract. Most

options contracts represent 100 shares of stock. The stock

that the contract is based on is called the underlying. You

can also trade options by writing options contracts, but the

focus for swing traders will be buying and selling options on

the market over the mid-term. Options can be ideal for

swing traders because they require far less capital

investment up-front and they have expiration dates over

time frames ranging from a week up to two years. Most

options that are traded are going to be around a month in

duration, which fits in perfectly with swing trading as we will

see.

FOREX Trading
Another popular market where investors hope for short-term

profits is on foreign exchange. In other words, trading on

currencies. This can be very risky but also very lucrative.

The billionaire George Soros built a great deal of his wealth

using currency trading. Soros made $1 billion by short

selling a large amount of British pounds sterling. Although

you probably won’t make $1 billion, FOREX investing can be

very lucrative for small investors. The way FOREX trading

works is if you believe one currency x will increase in value

relative to another currency y, then you buy x with y. You

can then book profits by selling x and converting it back to

y. Since the first currency had risen in value (assuming

everything worked out for you), then you will have more y
than you started with.
 Chapter 2: What is Swing Trading?
Swing trading is a short-term strategy that seeks to profit on
swings in the value of a stock, commodity, crypto, or the

market itself if you are trading index funds. While the

phrase short-term is used, this is only relative to long-term

investors with time horizons of years to decades. A swing

trader is not a day trader and instead looks to profit from

changes in market price that occur over days, weeks, and

even months. If you are looking to buy a stock and sell it in

6-8 months for a profit, you’re a swing trader. If you’re

looking to buy a stock today and sell it in 3-4 days, you’re

also a swing trader. A swing trader isn’t out to make day

trades.
As we will see, it is important to distinguish swing trading

from day trading for legal reasons. There are multiple

strategies that can be used to both predict market swings

and to hedge your bets, that is mitigated or minimize losses.

You can swing trade on any market or with any type of

asset, including FOREX, gold, or bonds but most swing

traders focus on the stock market.

What is Day Trading?
Day trading is considered a high-risk activity and so is
heavily regulated. To become a day trader, you must have

at least $25,000 cash in your account, and many experts

recommend that you have $30,000. Brokerages will strictly

monitor who is a day trader and who is not. You can receive

a day trading designation by engaging in at least 4-day

trades in any 5-day period. To count as a day trade, you

must buy or sell the same security more than once on the

same day. It’s important to understand the rules if you are

trading options. You can buy and sell multiple options

contracts on the same day without getting the day trade

designation if you are trading different contracts. So, if you

buy and sell shares of Apple on the same day, that counts

as a day trade. But if you buy an options contract on Apple,

sell it and buy a different options contract on Apple later in

the same day, even though you’ve made three trades, that

does not count for even one day trade.

Day trades carry over the weekend. So if you make your

first day trade on Friday, and make a second day trade the
following Monday, your day trade count will be 2. If you
make 2 more trades by Thursday, then you’re going to be

designated as a day trader and have restrictions placed on

your trading account.

There are some brokerages that don’t have the capital

requirement, but they take huge commissions. These

brokerages are not used by professional day traders but can

be used by small investors to learn the art and science of

day trading, without having to put up $25,000. Even with

the high commissions, if you are good at it — you can make

profits.

Day trading relies on several strategies to anticipate moves

in the markets. These include various signals that indicate

whether a given security is going to increase or decrease in

price. If the signal indicates a price increase, that can be a

good time to buy. If the signal indicates a coming downturn,

that can be a signal to sell your shares. Professional traders

don’t rely on one signal — they take into account multiple

signals to make reasonable bets. Often, the bets will be

wrong, and you’ll face losses, but people who are skilled day
traders are right more often than they are wrong and make

substantial profits.
Swing Trading vs. Day Trading
Swing trading is kind of a version of day trading lite. With
swing trading, rather than looking to make a profit on moves

in a security that occur in one day or less, you’re looking to

profit on price fluctuations that occur over mid-term time

frames. You can think of swing trading as occupying a

middle ground in between day trading and conventional

stock market investing. Time frames used in swing trading

can be as short as 2 days, up to a few weeks, and even out

to a few months. You are attempting to capitalize on large

moves or swings in the market rather than on short-term

moves that a day trader focuses on.

One important distinction is that swing trading is not

something that is regulated. There aren’t capital

requirements placed on swing traders. The only capital that

you will need in your account is enough to do the trades

that you want to carry out, so you can start small and not

worry about putting $25,000 in your account. As far as the

brokerage is concerned, if you are not carrying out day

trades, you’re just another investor.

Since you’re not trying to profit on the heat of the moment
changes in the direction of a security during a single day,

swing trading has a lower risk than day trading. However,

the upside is the same. You can profit quite handsomely

doing swing trading, probably as much as you can doing day

trading. It requires more patience than day trading since

you might have to wait several days, or even weeks, or a

month before potential profits are realized.

Even so, swing traders use many of the same techniques

that day traders use. In some of the analysis a swing trader

uses, you will be looking at the same exact signals the day
traders are looking at. The only difference will be the time

frame of consideration and when you will act on your trades.

While day trading can attract adrenaline junkies who are

hoping for quick “wins,” swing trading is more suitable for a

calm personality looking to build on investments. In both

cases, you are hoping for short-term profits that are made-
off moves in the securities you invest in. And swing traders

also rack up “wins” and “losses.” Many times, your trades

will be based on assumptions that are simply wrong, and

you’ll lose money. However, with a less frantic pace, as a

swing trader, you’ll have more time to carefully consider

your trades. Also, you’ll have a longer time horizon to

realize profits. This can reduce risk because although stocks

can plummet fast, they can often recover value given

enough time. That won’t always happen, but you can see
recoveries. There are no hard and fast rules. Unlike a day

trade where you will want to exit quickly, you don’t have to
close your position on a swing trade over any defined time

period. You can stay in the position for weeks or months,

whatever suits you.

In summary, swing trading is an active form of trading in

securities. It will let you take a very active role in the

management of your account, and require that you follow

financial, economic, and political news very closely to

anticipate moves in the securities you are interested in.

Also, like day trading, you’re hoping to book profits in the

near term, rather than buying and holding until you’re in

retirement.

What Instruments Can You Trade In With Swing

Trading?
The answer is basically anything that can be traded. The
most frequently used traded securities include:

Stocks

Options
Exchange-traded funds

FOREX
Crypto

Bonds

Commodities, including gold, silver, and platinum

We will look at each of these in the book and see how to

apply swing trading techniques to each particular

instrument.
 Chapter 3: Market Signals
The bottom line with swing trading is that you’re looking to

profit from short-term price moves, but the phrase “short-

term” is relative. It’s short-term relative to the traditional

investor. It may be the same as a day trader in some cases,

but will typically be a longer time horizon relative to day

traders.

While you can swing trade with virtually any instrument, in

this chapter we’re going to look at market signals used to

trade stocks because the same types of market signals used

here can be used for virtually any type of investing. Market

signals are basically signals that indicate when an upturn or

downturn in the price of the security is going to be realized.

These signals are not perfect and can never be perfect

because markets are chaotic systems, and they are

dependent on the emotional states, desires, fears, and logic

of thousands of different individuals. Often, people engage

in herd behavior and react to the same news in the same

way. You might say that the indicators work “most of the
time” or at least more often than not. To increase the
probabilities that a trade based on a given market signal is

right, experienced traders rely on the evaluation of multiple

indicators, rather than simply looking at one and declaring

the stock is heading up or down and then engaging in the

appropriate trade.
Although you need to educate yourself on these indicators

and you will use them in swing trading, day trading is more

dependent on them. Swing trading is based more on longer-

term behavior than it is in a sudden upturn or downturn in a

single day or even over a few days. Often, swing trading will

rely on events that could include upcoming economic news,

the release of a new product, earnings reports, or simply the

bullishness investors have for a particular stock. For

example, investors are currently bullish on Netflix. Profits

can be made by swing trading Netflix in the coming months.

A swing trade on Netflix would involve buying shares now,

and then preparing to sell them at some point over the next

week, or possibly out several months when the share has

risen to a point where you can book expected profits. Of

course, even though you think Netflix is going to increase

over the next few months, you can’t know if it will do so.
Therefore you can incur losses as well as profits. Things may

not work out as expected. As a recent example, Apple lost a

Supreme Court case related to its exclusive control of the

App Store on its iPhones. It remains to be seen how that will

work out, but investors hoping the stock will rise may be in

for a downward trend instead, as a result of this surprise

ruling. This example goes to show that you need to be

aware of news events related to stocks that you are trading,

not just the latest price to earnings ratios or signals

indicating the stock is a good buy.

Candlesticks
The first indicator we will look at has its origins in rice

trading in Japan. It’s called a candlestick, and candlesticks

have applications across a wide range of financial

instruments. A candlestick has a body and two wicks, one

wick coming out of the top of the body and the other
coming out of the bottom of the body. The thickness or

height of the body can vary, and the lengths of the

restrictive wicks can vary. A candlestick appears as follows:

A candlestick tells you the spread of trades and the prices,

and whether or not trading is bullish or bearish (meaning

traders are buying and driving up the price, or selling off

driving the prices down). There are two types of

candlesticks. A candlestick will be green on a stock chart (or

FOREX or whatever) if it’s a bullish candlestick. In that case,

the bottom of the candlestick indicates the closing price.

This doesn’t mean the closing price for the day; it means

the price at the end of whatever time period you select for

your candlesticks so it can be for 1 minute, 5 minutes, or a

day. A day trader is generally going to be interested in

looking at charts that show candlesticks for 5-minute

intervals. As a swing trader, you’ll probably look at daily

candlesticks.

For a bullish candlestick, the top wick shows the high price
for the time interval and the bottom wick shows the lowest

price.
Bullish candlesticks indicate buying, but that doesn’t
necessarily translate into an immediate uptrend.

A bearish candlestick is red in color on charts. Bearish

candlesticks represent traders selling off. Presented on a

chart such as a stock chart, since they represent the

opposite move to a bullish trade, the top and bottom of the

candlestick have the opposite meaning to that found with a

bullish candlestick. If the candlestick on your chart is red,

the top of the candlestick is the opening share value, and

the bottom of the candlestick is the closing value. The wicks

still represent high and low prices for the time interval,
respectively.

It’s important to pay attention to the time interval of your

chart so that you understand the meaning of the

candlesticks. For example, we can look at a six-month chart

for Apple.

In this case, each candlestick represents one day of trading.

As a swing trader, this is what you are going to be

interested in. You are not looking to make profits by the

minute or the hour.

The relative size of the body of a candlestick is a

representation of the change in the price of the stock over

the course of the trading period represented by the

candlestick. A large candlestick body with a changing color

can indicate a change in market sentiment. So if there is a

green candlestick with a large body, that indicates a lot of

traders are buying the stock. The large size of the body
indicates that at the close of trading, the price of the stock

was a lot higher than at the open. If the candlestick is red in

color and has a large body, that indicates that a large

number of traders are selling off the stock. In that case, the

closing price is a lot lower than the price at the open. Of

course, sometimes this is an indication of what is coming

next, sometimes it’s not.

The important signal regarding the size of the body that

traders look for is whether or not it envelops the previous

candlestick. That is, you look to see if the candlestick

changed in color and if it’s larger than the previous

candlestick. If so, this is a strong indicator that an upturn

(rise in price) will follow if the larger or enveloping

candlestick is green, or a downturn is on the way (decline in

price) if the latter, enveloping candlestick is red in color.

This is what this phenomenon will look like in a chart:

In this case, a small green candlestick is followed by a large

red candlestick. This tells us that while a small number of

traders briefly bid up the price by buying shares over the
time interval to the left, the candlestick on the right
indicates a larger and more vigorous sell-off. This probably

indicates that a downturn in share price is coming.

That downturn can be an opportunity, so you shouldn’t

automatically view green as ‘good’ and red as ‘bad.’ Buy

low and sell high is your motto, so a coming downturn also

represents a coming buying opportunity. You can, of course,

short the stock but beginning traders are best off learning

the ropes profiting in a conventional way.

So let us summarize what to look for when you see two

candlesticks next to each other that differ in color. The first

case is a green or bullish candlestick followed by a red

candlestick, which is bearish. If there is an engulfing

pattern, that is the red candlestick is larger than the green

candlestick before it, and you see this pattern at the top of
an uptrend, this indicates that the stock is going to enter a

downtrend or decline in share price. We say that this is a

bearish engulfing pattern.

If we see the opposite pattern – that is, at the bottom of a

downturn we see a red candlestick engulfed by a green

candlestick immediately to the right, that is a bullish signal

– the stock is about to enter an uptrend with rising prices.

If you are long and hoping for price increases, then you’re
looking for bullish indicators. If you are shorting stock or

selling put options, then you’re looking for bearish

indicators.
It’s important to recognize that while these are often reliable

indicators, they don’t work all the time. So you’ll need to

take other things into account before entering into a trade.

Another indicator to look for with candlesticks is an inverted

hammer, sometimes called a shooting star. It looks like this:

Notice that the top wick for an inverted hammer is quite
large, while the bottom wick is quite small. That tells us that

the price shot up quite high but didn’t drop very much. The
small body, on the other hand, tells us that the opening and

closing share prices were not much different. You will see

candlesticks with this pattern at the bottom of downward

trends and at the top of upward trends. If it’s green and at

the bottom of a downward trend, this is an inverted

hammer, and it represents a coming upward trend in the

share price. On the other hand, a red candlestick with this

pattern at the top of an uptrend is a “shooting star,” and it

indicates a coming drop in share prices.

At the bottom of a downward trend, an inverted hammer is

a buy signal if you are hoping the price of the stock (or
whatever you are investing in) will rise. As a swing trader,

you are going to be looking at buying at the right

opportunity, so that you can buy at the lowest possible price

and sell at a high price to book profits. This will apply

whether you’re directly buying stocks or if you are buying

call options.
If you are looking to sell, seeing a shooting star at the top of

an uptrend is a definite indicator to sell. On the other hand,

if you’re looking to short the stock or buy put options, then

it’s a buy signal.

Here is a chart showing a classic shooting star. A downturn

in share price immediately follows.

In the chart below, we see an inverted hammer which

indicated an upturn.
Indecision Candles
A candle that has a small body but large wicks is called an
indecision candle. These are also called “spinning tops” or

“dojis,” and may indicate a coming reversal. What a swing

trader will look for is several indecision candles grouped
together, which is taken as a stronger indication that a

reversal is coming.
Indecision candles are shown here. Note the relatively small
body and long wicks emanating from each candle:
A hammer or shooting star which we’ve already examined

are special types of indecision candles.

Oscillators
The next indicator that we will look at is called an oscillator.
You can use oscillators in conjunction with candlesticks for a
more solid analysis tools to decide when to buy or sell

shares. What an oscillator does is it can compare current

market prices to the range of prices over a past period. This
indicates the current momentum for the stock or index.
Oscillators are used to search out overbought and oversold

assets. If an asset is overbought, that means the price has

been driven higher than it really should be, and a coming
decline is possible. If an asset is oversold, then an upturn in

share price is likely. If you are looking to profit on

appreciating stock prices, then you’re looking for oversold
signals. If you are looking to short a stock, then you’re going

to look for overbought signals. Oscillators can be utilized

when a stock is “moving sideways” or not showing
indications that it’s going up or down. Moving sideways

means that over time, the price of the stock stays within a
limited, narrow range.
Oscillators can be important tools to utilize in certain
situations, such as when momentum is running out on a
trend. For example, consider the ‘overbought’ situation. As

the stock price continues on the uptrend, at some point the

volume of trading for the stock will start to decrease, even if
the price keeps increasing a little bit. This is a strong

indication that interest in the given stock has begun to

decrease. In many if not most cases, that can mean that the
stock is overbought and selling will begin soon. If you have
bought the stock at a lower price, this may be a good time

to exit.
Specifically, one tool that you can use to determine when
there is an overbought or oversold situation is called the S &

P Oscillator Index. One thing this index will tell you is

whether the rate of trading is increasing or slowing down.
That will give you an idea of what the conviction of the

market is on a given stock or index, that is bearish or

bullish. You can also utilize the “ultimate oscillator,” which
relies on three different time frames rather than one-time

frame, which is the standard for oscillators.

Like other indicators, oscillators should not be used in
isolation. You can use them in conjunction with other tools

like candlesticks. Typically, you can look at the candlesticks

to get an idea of where they are indicating that the trend is
heading. Then you confirm looking at other indicators such
as an oscillator. If they all agree, then it’s a good time to

either enter or exit a trade.

Let’s look at the ultimate oscillator on a stock chart. What
you want to do is compare the trends shown in the oscillator

to the trends in the stock chart for the given security that
you are interested in. For the ultimate oscillator, you can
pick 7 time periods, 14, and 28 time periods. You will be

interested in the following items:

Buying pressure: This is the closing price minus the
minimum price.

True Range: Maximum – Minimum, where maximum is

given by the high price or previous close, and
minimum is given by low price or previous close.

Periods: To get your average periods (say 7 periods),

you sum up the seven periods of buying pressure and
divide by the 7 periods true range.
 The ultimate oscillator is given by a simple formula

that is UO = 100 x (7 Period Average x 4 + 14 period

average x 2 + 28 period average)/ (4 + 2 + 1)
You don’t need to sit down and do these calculations; this
will all be done for you by the computer and displayed by

whatever stock chart you are using.

In the example chart below, we show what it looks like when
you add the ultimate oscillator to your stock chart. In our

case, we used year-to-date values for Apple.

You will compare momentum trends in the oscillator to those

in the stock price. Let’s look at a buy signal. A buy signal is

going to happen during a downward trend. In the case of a

buy signal, you are looking for a bullish divergence. This

happens when the price of a stock reaches a new low that is
lower than the low reached by the oscillator. Traders take

this as a signal that bears are losing momentum in the

market. So, this is a good time to buy the stock before
upward pressure from bulls entering new positions drives

the share price up again. A bullish divergence indicates that

security is oversold.
Conversely, a sell signal is indicated by a bearish

divergence. In this case, the price of the stock forms a high

that exceeds that of the indicator. This indicates that the
stock is overbought and may soon head into a downward

trend.
Summarizing:
If the share price is lower than the price of the
oscillator in a downturn, that is bullish or a buy signal.

If the share price is higher than the price of the

oscillator in an upturn, that is bearish or a sell signal.
Another commonly used oscillator is RSI or relative strength

index. The RSI will set up two boundaries for the stock that
you are looking at, at top and bottom. If the line crosses the
boundaries, the stock is overbought or oversold. Setting this
up for apple YTD in 2019, the upper boundary is 80, and the

lower boundary is 20. We can see where the chart matches

up in trend to the oscillator. In the chart, we have marked to
locations where the RSI went past 80, and this corresponded

to downturns in the share price.

Experienced traders use oscillators to help them determine

when the momentum in the market for the security they are

interested in is starting to peter out. Generally, oscillators

are useful but not considered to be strong indicators. In
other words, as a swing trader, you should learn about
oscillators in detail and use them in your analysis, but you
should not strictly rely on them and only use them in

conjunction with other tools.

Support and Resistance

Stock price is not always moving up and down in the large.
Since stock prices are chaotic, there are rarely straight lines,
the lines are always jagged as the price moves up and down
over short-term intervals. However, over extended periods

of time, the price fluctuation can become strictly bounded.

This happens after a strong upturn or downturn and can
indicate a changing sentiment in the market. There are two

boundaries that are important in stock charts when stock

prices get trapped in this manner; these are called
Resistance and Support.
Let’s look at resistance first. What resistance means is that
there is resistance preventing the stock from moving higher.
The stock will remain at a relatively high price level for a

time, but then after bouncing around over a narrow range, it

will decline in price. We can see a bit of an example looking
at an Apple chart.
In the section of the chart labeled resistance, the stock
never managed to climb above $227.63 a share, although it
flirted with the zone from 8/27/18 to 9/24/18, nearly an

entire month. As you can see from the chart, there was a
massive downturn in the share price. You might take a look
at the news at the time, the resistance period may have

been the result of either waiting for an earnings report when

investors were not certain if Apple would show strong
profits, or it could be the result of waiting for the release of

the newest iPhone, and perhaps when it was actually

released, it disappointed investors.
To summarize, resistance occurs at the end of an upward
trend, and then it is indicated by a time period where the
stock stays relatively tightly confined by a price range,

doing the usual zigzag between higher and lower prices, but
never exceeding the resistance boundary. This often
indicates a downward trend is coming.
Is a downward trend always coming when you see this

signal? Absolutely not. When it comes to the markets, there

are always unforeseen events that are out of the control of
traders. That can range from natural disasters to

unexpected earnings reports. Of course, leaks and rumors

will swirl around earnings reports and other news, so there
is some idea of what is going on. However, it was always

possible that Apple could release unexpected good news,

and instead of being a period of resistance, we’d look upon
that zone of stagnation as a floor of support. Sometimes

support and resistance are only clear after the fact. Support
and resistance do indicate a possible reversal, but it might
also simply be a “weigh station” on the way to resuming the
current trend. That is an illustration of why any given

indicator should never be used in isolation.

Which brings us to the other marked section in the chart,
where we have indicated a period of support. You can see

from the chart that during this time period, the price never
managed to get below $169 a share. The time period in the
chart is quite long, showing that the share price languished
in that zone for 2 months.

Note that when you look at a chart over different time

ranges, you may see zones of support and resistance that
you didn’t notice before. When you look at the chart for one

single day, as day traders do, you are going to see a lot
more action that results from the chaotic nature of the
markets and traders acting as traders do. The key is to look

at the chart on time frames that are relevant to the time

frames that you are interested in using. If you are a swing
trader, then don’t look at charts that are broken down into

five-minute windows. Also, oftentimes, what you see as

support or what you see as resistance can change
depending on the time frame and window used to look at
the data. When you’re looking at support and resistance for

the purposes of making a trade, you really have no idea

what is going to come next from the future (what doesn’t
yet exist but would be to the right of where you’re currently
seeing a sideways move). Just remember, always use

multiple indicators to strengthen or perhaps weaken your

confidence in making a particular trade.

What Drives Market Momentum

When we are talking about momentum shifts, overbought
and oversold securities, what we are really talking about is

basic economics. Momentum in the market is driven by the

usual supply and demand. A rising share price that hits
resistance is encountering dropping demand for that

security in the markets. Conversely, when prices drop low

enough when the share price has been languishing at a
relatively low level, then demand for that security will rise
as optimistic traders begin taking advantage of the buying

opportunity.

Looking for Uptrends

Sometimes a stock will be locked a longer-term uptrend that
means profits can be made by swing traders. Netflix was on
such a trend in the first quarter of 2018. Had you got in at

the start of the year, you were looking at a solid increase in

share price by March.
Often, despite the short-term chaos of the stock market, the
security in question is on the path of a definite uptrend or
downtrend. You are going to notice this on slightly longer

time frames of a few weeks up to a few months. As a

beginning swing trader, spotting uptrends is going to be one
of your most useful and accessible tools. In the chart above,

the share price moved from $201 to $315. You can see from
the chart that there was also a countertrend, which was a
temporary downturn that occurred in the midst of the

overall increase. It’s hard to know by simply looking at

charts and data whether a downturn is temporary or not.
You can significantly up your odds of being correct about
future market trends by studying the company (or currency,
economy, commodity as the case may be) that you are
interested in trading. When you have a nice, relatively

smooth and long-term uptrend like Netflix had over the

given time period, you could have profited handsomely at
nearly any point had you purchased the shares early in the

year. Of course, not all of us are so clever or lucky, which is

why even the most careful traders sometimes fail to profit
or even face losses.

The following illustration indicates what a countertrend

looks like in the midst of an overall climb. A countertrend
can represent a pullback, which is a direction against the
long-term trend.
Any point in between the countertrend and the resumption

of the upward march would be a buying opportunity, but it

would be foolish to buy on one signal alone. One thing you
will note is that in between “counter-trend” and “buying

opportunity,” the stock has basically moved in a sideways

fashion, that is you could take the in-between period as
support. The stock is unable to dip below a certain low level,
which can be an indicator that the upward trend will

resume. Moreover, we can look at other signals to either

bring more evidence that our view is correct or perhaps to
counter it. So, you would be looking at candlesticks, moving

averages, and oscillators as well. And you would be reading

the latest financial news about the company so that you

would enhance your ability to estimate investor sentiment

in the coming months.
An aside about this discussion, as a swing trader, “long-

term” doesn’t necessarily mean over the course of three to

five years. Long-term can vary by the situation and be just a
few weeks, depending on when you plan to enter and exit a
trade. For example, at the time of writing, there is a great

deal of uncertainty in the markets. The United States and

China have entered into a tit-for-tat trade battle applying
tariffs, which has left markets rattled. Nobody knows how

long this will last, and even if the tariffs stay in place,
nobody knows how long investors will care about it.
However, sitting at this point as a swing trader, you have

different ways you can approach the market:

It can be a buying opportunity. Shares are going to be
quite a bit lower than they were a few weeks ago,

especially for index funds.

It could be an opportunity to look for more downward
movement. A savvy investor might consider buying
 and selling put options to make short-term profits off
the downturn.
None of us are psychic, and even fewer among us have the
relevant inside information. So, from where we stand now as

a trader, it’s virtually impossible to know when the United

States and China will reach a mutually satisfactory trade
deal if they ever do. It’s also impossible to know whether or

not the tariffs will really impact the economy. It may be that
they aren’t high enough to make much difference, and
consumers will shrug them off. These are some of the

unknowns that an investor would be facing.

Over a short time frame of a week or so, it would be
reasonable to bet against the market by investing in put

options. This would also be a good way to earn substantial

profits on smaller upfront investments.
In this recent chart of SPY, which tracks the S & P 500, we

can see some of the candle indicators we’ve talked about in

action. First, note that there was a downturn which had a
green (bullish) candle that enveloped the previous red
(bearish) candle. That would indicate an upturn, which

happened. At the top of the brief upturn, we see a hanging

man. This is a red, bearish candle that has a high price
which never exceeded the open, so there is no wick coming
out of the top. There is a long wick coming out the bottom,

which tells us that the low price was significantly lower than
the closing price. That is a signal of a downward trend,
which is exactly what happened. The very end of the data

shows a doji, which is green. That could indicate a reversal

is coming, but whether or not there is a reversal, that is
something that depends on external forces as much as it

does on direct investor sentiment at the moment. The news

on trade the following day could completely upset the apple
cart.
Downtrends
You can take advantage of long-term downtrends as well.

There can also be a countertrend during a downturn, which

temporarily goes against the grain. There may be bad
earnings and other problems that ensure that the stock

price will decline for some time. As a swing trader, you don’t
have to be a victim to the downturn. You can either short
the stock, buy and sell puts, or you can even make trades

based on short-term signals that result in profits. In order to

profit off counter trends, you would look for signals that the
stock is about to increase. This will include looking for a

period of support, that is coupled with the appearance of

reversal or indecision candles. One technique you can use
to prevent yourself from suffering from large losses of
capital in such trades is to set up a stop-loss order. This is

an order to the brokerage to sell your shares if the price

goes below a certain value. In the case of support, you can
set up a price that is slightly below the support level to use

for your stop-loss. Then if the share price drops below that
value, your shares will be automatically sold. That will help
you avoid a situation that could arise involving a constant

drop off in share value as a downward trend is continued.

Flags
So-called flags are other indicators to look for on market
charts. A flag is characterized by a sudden shift up in price
over a short time period. This is the “flagpole.” To form a

flag, the price will stay within a narrow range, resulting in a

sideways pattern for a time. It could be support, meaning
that the stock was ready to resume an upward climb, or it
could be resistance, meaning that soon the stock would

begin dropping in price. When there is a sudden increase in

price over the short term forming a flag pattern, this is
called a “bull flag.” In many cases, steep increases in share

price – caused by a sudden increase in demand – are going

to be followed by a stagnant period during which demand
becomes more muted, preventing the stock from rising

higher. The key indicator for a bull flag is looking for

changes in the volume of trading. If it looks like a bull flag
on the chart and trading volume went up as well during the

steep share price increase, then you know demand is real

and more upside is coming. You can buy shares now,
entering a stop-loss order slightly below your share price.
That way, if your interpretation of the “flag” is mistaken,
your losses will be minimal. Setting the stop-loss at a level

slightly below your price paid for share ensures that you can
get out of the market if it turns into a downturn instead,
meaning that the “flag” was actually resistance.

What goes up must come down, and when there is a

sudden, steep decline in the market price over a short time
period, you might be witnessing a bear flag. After the steep
decline, you will see a period of sideways movement when

the price sticks to a certain range. This could be a period of

support or a brief stop on the way to more declines. If you
note high volume trading over the time period of the

flagpole, then that is an indicator that it is more likely than

not a true flag. This indicates that the downward trend is
likely to continue so you can respond appropriately by

shorting the stock or investing in put options. Perhaps

you’ve been long on the stock; a bear flag might be a signal
to exit the position before you’re wiped out.

Whether it’s a bear or bull flag, you should look for a signal
from some external event that either prompted traders to
enter positions quickly or engage in a frantic sell-off. If there
is no such external event that can be tied to the security in

question, you might not be seeing a true flag pattern.

Moving Averages
Price data can be smoothed out into an average using a tool

called a moving average. You can use moving averages with

different periods to analyze trends in the market. Averages
can be taken over different time periods, like 7 days, 30

days, and so on, giving you a smooth curve that you can see
on your market chart along with the price data of the stock
of interest. The time frame used for the moving average is

referred to as the “lookback period.” The shorter the

lookback period, the more responsive the moving average
will be to price changes, and the more closely it will track

the movement of the price.

The first reason to use moving averages is to eliminate
noise. The noise comes from the meaningless short-term
ups and downs in price that are common in stock charts. A

moving average with the appropriate number of periods,

can help you establish upward and downward trends, along
with overall levels of support and resistance. In other words,
imagine the stock price oscillating up and down within

envelopes defined by moving averages, with the peaks

hitting the resistance and the troughs hitting the support for
the stock price. This can be useful for identifying stocks that
are in a long-term uptrend that you may want to invest in as

a swing trader now, to book profits down the road.

In an upward trend, a 50-day moving average will help you
visualize the support level for the stock. In this chart, we

show Netflix along with the 50-period moving average.

The shorter the time period you select, the closer the curve

will be to the stock price. In this example, we’ve selected a

10-day moving average. Notice that it’s a smoothed-out
curve that tracks the stock price.

Stock charts will allow you to add a moving average

envelope, which will help you establish a price floor, ceiling,
and median. By default, moving averages will use the

closing price, but you can also use the open price, high, low,
or trading volume.
The chart below illustrates the way that a smaller lookback
period will give you a curve that tracks the actual stock

price more closely. In the chart, we’ve added a 5-period

moving average that nearly approximates the price changes
of the stock, and we’ve also added a 100-day moving

average which you see as the curve that is well below the
stock price.
The Rule for Moving Averages
First, take a look at a 20 to a 50-day moving average. If the
stock price is above the moving average, then this indicates
that the trend is up. In the chart below, we see Tesla. The

chart shows two-time frames where this phenomenon can

be observed. In the earlier time frame, the trend is up, and
the share price is above the moving average. In the time
frame that is more recent toward the end of the chart, we

see that the moving average is above the share price – that
indicates a downward trend, that is clearly visible.
Looking at the chart for the past month, it’s really apparent.
Notice that at the end of the chart (which is the time that

we are writing this book), the moving average is far above

the share price. That would indicate that more downward
movement is possible.

Types of Moving Averages

There are different moving averages that can be used in

order to look for different things on your charts. The

simplest type of moving average is called the simple moving
average, which is nothing more than the average share

price at closing (or open, high, low, whatever you select to

average). If you create a simple moving average with a
period of 20 days, it will simply add up the closing prices

and divide by the number of periods. Typically, the closing

price is used and that is usually the default provided on
most stock charts. While we’ve been referring to “days,”

you can create moving averages for any time period you
like, so moving averages are often made in reference to
“bars,” which is going to be the time period represented, so
averaging over x-hours, x-minutes, or x-days.

A simple moving average is used to estimate the trend. The

more time periods you include in the trend, the longer the
“term” of the trend. So, a 5-period moving average will give

you the trend for the past 5 periods, while a 100-period

average will give you the trend for the past 100 periods,
which is a much longer-term trend. If you are swing trading,

then you’re going to want to look for trend lengths that

reflect the time horizons that best fit your personal trading
goals. But its best to include a short-term and a longer-term
trend, to help you weed out what may be insignificant
fluctuations that buck the trend over short time periods.
As we’ve noted, in the event that the share price is above

the moving average, that indicates an upward trend in the

stock price. Of course, the stock price can cross the moving
average. This is an important signal to look for.
So, if the share price is above the moving average and then

crosses below it, that indicates a downward trend. For the

swing trader, this might be a signal that you should exit
your long positions. Or if you are looking to short the stock,

then this can be a time to enter your position.

Vice versa, if the share price is below the moving average
and then crosses it, that is an indication that could be a buy

signal if you’re hoping for rising prices.

You can also look at crossings among the moving averages
themselves. In this case, you’ll look at short period and long

period moving averages together on the same chart. Then,

keep an eye out for a moving average crossing the other.
This is called “SMA crosses SMA,” where SMA means simple

moving average. If the shorter period moving average

crosses above a long period moving average, that is a buy
signal.

If a long period moving average crosses a short period

moving average, that is a sell signal.
We can see this for Telsa, on the left side of the chart where
the longer-term simple moving average with 50 periods

crosses the 20-day simple moving average and remains

above it. You can see that subsequent to the crossing,
although there was a brief upturn, the stock price has

declined since.

Exponential Moving Average

The simple moving average gives equal weight to all price
data. So, if you have a 100-day moving average, the price
100 days ago has the same weight that the price yesterday

had. While the price 100 days ago has some relevance,
obviously, it is not as influential as the more recent price.
The way around this is to use an exponential moving

average instead. An exponential moving average gives

more weight to recent prices than a simple moving average.
However, an exponential moving average will give you

insight into the trend of the stock, so the overall purpose of

calculating the moving average is the same. However, an
exponential moving average is more sensitive than a simple

moving average. Theoretically, this means that it should be

able to detect trend changes before a simple moving
average will.

There is a downside to this, of course, and it comes from the

chaotic nature of stock market data. As we’ve mentioned
many times, stock market data fluctuates up and down

quite a bit. So, while an exponential moving average can be

more sensitive to coming trend shifts, it can also be fooled
by short-term fluctuations. So, you probably don’t want to
make all your bets on exponential moving averages alone.

Let’s consider some ways that you might want to use an

exponential moving average in your trading. The first thing
to look at is where is the price of a stock relative to the
exponential moving average. A rising exponential moving

average can indicate an upward trend in the stock price.

This can be a buying signal. Then look for a stock price
decline. If it goes close to the exponential moving average

or better yet falls below it, while the exponential moving

average is going up, then that is your signal to buy shares.
Conversely, a stock price that gets close to or crosses a

declining exponential moving average can be taken as a sell

signal.
You can also look for exponential moving averages to

indicate zones of support and resistance. If you see

something that looks like support in a stock chart, you can
confirm this if you see a rising exponential average, which
indicates a coming upward trend in the stock price.

Conversely, if you suspect you see resistance, this can be

confirmed with a downward trending exponential moving
average.

Moving averages can be taken together to give a more

accurate picture of market trends. If you suspect that an
exponential moving average is giving you a false signal,
double check with simple moving averages and other
indicators such as candles.
When it comes to swing trading vs. day trading, both traders

will be interested in both types of moving averages.

However, exponential moving averages will gain more
interest from day traders, while simple moving averages will

gain more interest from swing traders. This is because swing

traders have longer time horizons – often much longer, so
they won’t necessarily want the sensitivity to recent prices

that the exponential moving average provides.

As a swing trader, you’ll also be interested in inoculating
yourself against the false signals that the exponential
moving average may give you, that result from wild price

fluctuations in the recent past. Depending on your time

horizon, you will want to use moving averages with longer
time periods. Most swing traders use a 50-day simple

moving average as their go-to moving average.

Different time periods can also provide different information.
You can use the following guidelines to determine what

moving average you want to look at for a given type of

analysis:
 Use a 20-period moving average when you are looking
to spot upward or downward trends.

Rely mostly on the 50-period moving average.

Historical data suggests that it is the most useful
indicator when trying to spot a stock that is in an

upward or downward trend.

Use 100-period moving averages to look for support
and resistance.
Always combine your analysis of moving averages

with analysis taken from other indicators.

The Golden Cross

Swing traders pay attention to important trading signals
that are given by different period moving averages crossing
each other. In the following chart of SPY for one year, you

will notice that the pink and purple lines cross each other at
three points. The pink line represents the short-term or 20-
day moving average, and the purple line represents a long-

term 100-day moving average.

Notice that when the pink line crosses above the purple line,

the price of the stock (in this case SPY) goes up. When a
short-term moving average crosses a long-term moving
average, we call it a golden cross because it indicates this

upward trend in price. This is not too difficult to see why this
would be the case, the 20-day moving average is more
sensitive to recent trends than the 100-day moving average,

so it is certainly more indicative of a change in trend. Often,

when looking for a golden cross, a trader will compare the
50-day simple moving average with the 200-day simple
moving average. A 200-day moving average gives you quite

a long-time horizon covering more than half the year. The

bottom line is that if a short-term moving average crosses
above a long-term moving average, that is a buy signal if

you are hoping for the stock price to go up.

Death Cross
The opposite situation is called a “death cross” and with
good reason. When a short-term moving average curve

crosses below a long-term moving average, that tells us that

share prices are likely to decline. In the graph of SPY above,
the signal was painfully accurate. You can see that after a
period of moderate support, the share price crashed. Soon

afterward, the short-term moving average begins rising until

it again crosses the long-term moving average, indicating a
new upward trend. A death cross is a sell signal, or if you

don’t hold a position in the stock, it might be an indication

that a buying opportunity is near.
Again, you will want to use a golden or death cross in

conjunction with other tools of analysis at your disposal,

including simply watching the news to see what is going on
that might influence prices. It can be hard to know when the

exact best time to buy will be, but zooming in on the

downturns lowest point, which occurred on December 26,
2018, we can check the candles for more guidance. At the
bottom of the dip, there is a clear bullish envelopment. We

have circled this in the chart below.

Looking at other indicators is important. If you bought
shares on the day when the enveloping bullish candle
appeared, the closing price was $246.18. Had you waited for

the moving averages to cross, then you’d have paid $274

per share. The price rose significantly above that level, so
you still would have profited but not as much.

It can be instructive to look at the exponential and simple

moving averages on the same graph, using the same
periods. For this exercise, we’ll include two short-term

moving averages, the first the same 20-period simple

moving average that is already on the graph in pink, and
we’ll add a green curve which is the 20-period exponential

moving average. The first thing to notice is that the

exponential moving average tracks the changing stock
prices more closely, and on downturns, it crosses the long-
term moving average before the simple moving average
does so. In this case, it also picks up the new upward trend

more strongly than the simple moving average; however,

notice that both cross the long-term moving average at the
same time.

In the chart, the 20-day exponential moving average is

denoted by the green curve.

In this chapter, we have described some of the tools that

you can use while swing trading. In the following chapter,

we will look at some specific strategies used by swing
traders.
 Chapter 4: 10 Top Swing Trading
Strategies
In the last chapter, we’ve seen many of the tools you can

use to estimate when a stock or market index will rise or fall

in price. Now, we’re going to look at different strategies
used by professional swing traders that will help a trader

make more profitable trades. The strategies are not

mutually exclusive. You aren’t necessarily going to stick to
one trading strategy all the time. The tools and indicators in

the last chapter can be used by virtually anyone, no matter

their trading strategy. The indicators are there to help you
determine the direction of the market or the specific

investment that you are interested in.

Trendline Trading Strategy

Trendlines can tell us which direction a market is going

(stocks, FOREX, crypto, etc.). Trendlines can be used as a

trading strategy by themselves, or in conjunction with other
trading strategies. An important use of trendlines is to help

a trader avoid being fooled by a market pullback that occurs

amid a larger trend. When pullback ends, the long-term
trend will resume.

Trendlines can be drawn on charts. The purpose of drawing

a trendline is to determine where future lows will occur. If
there is an upward trend, you can draw your trendline in the

following way. First, look for price peaks and lows in the
market data. In the case of an upward trend in price, you
will focus on drawing your trendlines between one low point
in price to the next. So, start by looking for the first low of

interest toward the left-hand side of the chart. Draw the

trendline from that low to the next low point in price. Then
extend it out past the right of the chart so that you can get

an idea of where the next low point will occur.

When there is a downward trend in the market, you can also
draw trendlines, but you connect high points in the waves

instead of lows. Start your trendline at the first highpoint of

the price and draw the trend to the next highpoint. Then you
can continue to draw the trendline out past the right to

estimate where the next high point will occur.

You should draw your trendlines connecting at least two
peaks or lows in price. If you can connect more, the
trendline will be more accurate.

You don’t have to draw trendlines with pencil and paper;

online stock charts are set up so that you can draw
trendlines on them while on your computer. In the example
below, we have added a trendline for the downturn in Netflix

price. The two arrows indicate the two peaks that were used
to draw our trendline. Notice that the trendline sets a
boundary that the price of the stock doesn’t cross until the

underlying trend reverses.

The purpose of drawing trendlines is to determine support

and resistance price levels. While we’ve illustrated this with

a trendline connecting two peaks, notice that it follows the
real trend of the stock price very nicely. However, trendlines
don’t always work so neatly, and we see in the same chart

that once the uptrend began, the trendline drawn between

the first two lows doesn’t produce much as far as future
accuracy. Quite soon it overshot actual prices by a large
margin.

What this error indicates is that you should not use trendline

trading by itself any more than you would do so with other

methods or indicators.

Floor Trader Method

The floor trader method has proven to be very useful for
FOREX trading but can be used no matter what market is in
your interest. This type of method requires the use of

moving averages, which we discussed extensively in the

previous chapter. Simply put, the floor trader method uses
the two moving averages to identify the trend. Then you

trade in the direction of the trend. This method relies on

pullback or retracements as they are referred to in FOREX.
In the midst of a major price trend, a retracement is a

temporary pullback in the other direction. A retracement

differs from a reversal in that it’s a temporary aberration
taking place within that larger trend, while a reversal is an
actual change in the direction of the trend. The floor trader

method has many rules that you can follow depending on

what your investment goals are. Let’s start by looking at the
case where you’re looking for the price of the instrument to

rise, such as a rising stock price.

To use this method, you’ll use two moving averages, a 9-
period exponential moving average, and an 18-period

exponential moving average.

An uptrend is indicated when the 9-period exponential
moving average crosses the 18-period moving average and

rises above it. In the chart below, the blue moving average
is the 18-period moving average, while the purple line
represents the 9-period moving average. Note the two
circled points where this type of crossing occurred and the

subsequent uptrends.
Retracements are lows that occur against the overall
upward trend. Traders are advised to wait until a
retracement occurs to enter a position. The low price should

touch the 9-period moving average or even both moving

averages. Then you buy when you see a reversal
candlestick that could indicate that the major trend is

resuming. You can put a stop-loss order 1-5 pips below the
low price point of the retracement.
The floor trader’s method can also be used to short the

stock on a downtrend. In this case, a downtrend is indicated

by the 18-period exponential moving average. In the Netflix
chart above, you can clearly see that the blue line, which is
the 18-period exponential moving average, corresponds to

downward trends very nicely when it is above the 9-period

moving average. A crossing of 18 above 9 indicates the
downward trend, and then you will wait for the retracement.
This is noted when the price reverses (temporarily) and

touches or comes close to the 18-period exponential moving

average. To short the stock, sell when you see the
candlestick indicate that the main trend is going to resume.

Forex traders put stop-loss orders 1-5 pips above the peak
price point of the retracement.

Supertrend
The supertrend indicator is another analytical tool that can
be used to identify upward and downward trends in the
market. A supertrend indicator is defined by the period and

by a multiplier. The typical values used for these are a

period of 7 and a multiplier of 3.
Online market charts will allow you to overlay a supertrend

onto the price chart for the stock or other investment you
are interested in. When the supertrend falls below the share
price, this is a buy indicator. This will be shown as a green

line on the chart. Of course, this is assuming that you are

interested in a rising price for the asset.
A red line on the chart occurs when the supertrend is above

the share price. In that case, it is a sell indicator. On the

supertrend, a sell indicator or red line tracks a downward
trend in prices, while a green or buy indicator tracks an
upward trend quite nicely. In the following chart, we show
the supertrend indicator together with Netflix stock.

Gartley
The Gartley pattern is also known as “ABCD.” This was
developed by a trader named Gartley in 1935. It has four-
letter designations because you seek out a pattern that has

four price swings. The Gartley pattern can be used in any

kind of market. The pattern can be used for a bullish or a
bearish strategy if you know what to look for. The pattern

will include an overall trend and a retracement. Let’s first

look at an ABCD chart, which is a buy signal.
From point X to point A, we see the upward trend. The goal
is to trade with the long-term trend. A Gartley pattern will
have some sort of “M” shape in the chart. You can see from

our fictitious example that there is an M that looks

somewhat distorted. The dashed line is not part of the
Gartley pattern, but instead is a continuation of the upward

trend. The best point to buy is at the bottom of the

retracement, which would be point D. You can use other
indicators to estimate where this point will be, such as

looking at candles and moving averages.

You can draw Fibonacci levels on your chart to estimate how

far a price will move after the completion of a pullback. This

will help you determine profit targets when attempting to
trend with the trade. Fibonacci levels don’t require a math
degree to calculate; in fact, you pick three points on the

chart and have the computer do it for you. However, typical

values are 61.8%, 100%, 138.2%, 161.8%, 200%, and
261.8%. If the four legs of the chart end up at a high point,

this is considered a bearish signal. Of course, if you get in at

point C, then you’ve made a solid profit.
In the above chart, the line B-C is a retracement. Point B

indicates the support level. The trader should look at other

indicators to confirm what the pattern demonstrates.

Bollinger Bands and Dynamic Support and

Resistance
A Bollinger band is an envelope around the prices in a
market chart. The main point of Bollinger bands is to

identify levels of support and resistance, that is price levels

below which the stock is unlikely drop below or that the
stock is unlikely to go above. Bollinger bands provide more

in-depth information than you can get from trend lines or

moving averages by themselves. There are three things that
we can get information about by using Bollinger bands. First,

we will see two trend lines. A trend line below the market
price will indicate the level of support. There will also be a
trend line above the market price, which tells us the level of
resistance. These are dynamic in that they change with the

market price as time goes on. The second thing that

Bollinger bands will inform us about is the volatility of the
stock. Volatility is simply a measure of how much the price

moves up and down over a given time period and how big
the price swings are. If you think of a really jagged stock
chart with big highs and lows, that is a stock with high
volatility. A smooth curve that increases slowly would be an

example of low volatility. Finally, Bollinger bands, by

providing an envelope around the price curve, tell us the
extent to which prices are varying.

Using Bollinger bands requires a moving average. In the

Netflix chart below, we’ve added Bollinger bands with a 20-
day moving average. What the Bollinger bands tell us is how

the prices spread about that moving average.

Using a different moving average will produce different

Bollinger bands. With a longer moving average, you’ll

expect to see more fluctuation. This is because what the
Bollinger bands represent in a mathematical sense is the

standard deviation about the moving average. Over a longer

time period, the stock has more chance to change in value
by larger magnitudes. Below we show the Bollinger bands
using a 50-day moving average. You can compare that to

the 20-day moving average in the above chart.

Notice that the bands are much wider and at a few points

the price of the stock goes outside the Bollinger bands.

Now, let us consider all things being equal, so focus on

Bollinger bands with a 20-day moving average. Wide

Bollinger bands indicate more volatility in the market price

of the stock. Narrow Bollinger bands indicate less volatility.

This makes sense, with more variation in the price you

would expect a larger standard deviation (by default charts

will show two standard deviations).

Bollinger bands are used to weed out buy and sell signals

from the trend. They can also be used to determine whether

the stock is currently priced too high or low. When the stock

price is at the moving average, the middle line in between

the Bollinger bands, it’s considered neither priced too high

nor priced too low.

Now consider when stock prices touch the top of the

Bollinger bands or even lie outside. In that case, the stock is

judged to be overpriced. This is shown below when the

stock price is rising.
Now let’s consider the opposite situation. When the stock

price is near the bottom of the Bollinger bands, or possibly

falling below it, that is a cheap-priced stock.
So, you can use Bollinger bands to get buy and sell signals.

You can also look at the wicks of the candlesticks and their

relation to the Bollinger bands. If you are in the middle of a

downturn, an oversold stock can be indicated when the

wicks are touching the bottom of the Bollinger band, or

falling just outside of it. An overbought stock will be

indicated by the opposite, that is, look for the wicks of the

candlesticks to touch or go outside the top Bollinger band. If

you get an oversold signal from the Bollinger bands, that is

a buy signal if you are looking to belong on the stock. If you

get an overbought signal, you’re going to be interested in

selling the stock and booking your profits.

You can also look for reversal signals in Bollinger bands. If

the entire body of a candlestick moves outside a Bollinger

band, this may be a reversal signal.

In a downturn, look for a hammer. A hammer in a downturn

may be an indication of a trend reversal which will swing

into the uptrend. At the top of an uptrend, a shooting star

touching the upper Bollinger band can be an indicator of a

coming downtrend.

Like any tool, a Bollinger band is not perfect and won’t be

right all the time. You should use the information you gather
from Bollinger bands in conjunction with other indicators.

Middle Bollinger Band FOREX Trading Strategy

This strategy is popular in FOREX markets. In this strategy,
the focus is on the midline in the Bollinger bands, which is

the moving average curve. Use a 20-period moving average

and two standard deviations. You want to look for points

when the closing price of a candlestick touches the moving

average curve. If it does, there are two possibilities:

If the moving average is in an upward trend, that is a

buy signal.

If the moving average is in a downward trend, that is a

sell signal.
Using this technique, the upper and lower Bollinger bands

are ignored. In the example below, you can see how the

closing price of a bearish candle nearly touches the moving

average or middle curve in the Bollinger bands. That can be
used as a selling signal. The moving average curve at that

point has a downward slope. Notice the downward trend

continues after that point.

CCI Moving Average Forex Trading Strategy

With this strategy, which is used in FOREX trading, you use

the CCI oscillator. CCI can tell you if the trade that you are

looking at is overbought or oversold. The oscillator is used in

conjunction with the moving average in order to establish a

trend.

This strategy requires the use of two moving averages. The

first moving average to use is a 7-period Exponential

moving average. It should be used in conjunction with a 14-

period exponential moving average. You will look for

crossovers between the moving averages.

When the 7-period EMA crosses over the 14-period EMA to

the upside, that is a setup for a buy signal. To ensure that

the retracement is not a reversal, wait for the price to return

to the moving average. If the CCI oscillator is below 100,

then this is the time to buy. You can also look for bullish

candlesticks prior to buying.

Your selling strategy relies on the 7-period EMA crossing

over the 14-period EMA to the downside. Prices will drop,

but you’ll want to wait for them to move back to the moving

average. When the CCI goes above 100, that is a sell signal.

Picking Tops and Bottoms Trading Strategy

Using ADX Indicator
This is another FOREX trading strategy. ADX is an average

directional index. This not only indicates trend direction but

also how strong the trend is. Tops and bottoms indicate that

we are looking for points on the price curve that are

maximums and minimums before a reversal. In the case of a

top, what this means is that a bullish or upward trending

price curve is about to top out, indicating that a selling

strategy would be appropriate. In the case of a bottom, this

means that a downward or bearish trend is about to reach

its low point so this could be a buying opportunity.

In other words, we are about to hit a reversal.

Two moving averages are used with this strategy. These are

the 20-period exponential moving average and the 40-

period exponential moving average. For the ADX trend

indicator, use the default value of 14 periods.

In this strategy, the 20-period exponential moving average

is used to determine support and resistance. The ADX

indicator is used to find points of reversal. When the ADX

tops 30, this is a sign that there is a strong trend. At any

point, you want to look at crossings between the two

moving averages. You’re looking for the 20-period

exponential moving average to cross the 40-period moving

average to the upside or the downside, which represent
buying and selling opportunities, respectively.

If a candlestick touches the 20-period exponential moving

average after it crossed to the upside of the 40-period

moving average, this is a buy signal. The lower moving

average, which is in this case, the 40-period exponential

moving average can be used as a guide for stop-loss orders.

They should be placed 2 pips below that line.

Now, consider the case of the 20-period exponential moving

average crossing to the downside of the 40-period moving

average. This can be taken as a selling signal. Again, you’ll

look for a candlestick to touch the 20-period line.

Both strategies should be employed only when the ADX tops

30 so that you’re sure of trend strength.

The Hull Moving Average

The Hull moving average was developed to eliminate price
lag. You can use a 50-period Hull moving average to indicate

a trend. You will find that it fits pricing data very nicely. In
the chart below, we show the Hull moving average as the

purple line laid over Netflix pricing data.

When the Hull Moving averages turn upward, this can be

taken as an entry signal to enter a long position. Likewise,

downturns in the Hull moving average curve suggest

entering a short position.

You can also use Hull moving averages with two different

periods. On Forex markets, it is common to use 7-period Hull

moving averages and 14-period Hull moving averages and

to look for the 7-period moving average to cross the 14-

period moving average.

Crossing to the upside indicates an upward trend while

crossing to the downside indicates a downward trend.

In this chart, you can see how accurate the Hull moving
average can be. This is an overlay of the 7-period Hull

moving average over the price data. It tracks it nearly

exactly.
In the chart below, notice the purple line, which is the 7-

period Hull moving average, and the blue line, which is the

14-period Hull moving average. Soon after the crossing, you

see a strong uptrend. Near the top of the uptrend, the 7-

period Hull moving average crosses below the 14-period

moving average. Although the share price still went up, the

continued uptrend was brief and followed by a downtrend.

Another crossing quickly resulted in another uptrend.

 Chapter 5: Safe Practices to Protect
Your Capital
One of the biggest risks that come with beginning traders is

letting things get out of hand and ending up broke. You

don’t want to be that person. Even experienced traders

have their losses, so you can’t expect to go out and win on

every trade. So, you will need to take some steps to protect
the capital that you’re able to invest and live for another

day. In this chapter, we are going to make some basic

common-sense suggestions that every trader should take to

heart.

It can be tempting to bet the farm when you see a “sure

thing.” The problem is that throughout the history of

markets, from the very first tulip craze to the present day,

too many people have seen a sure thing and ended up

broke. Despite all the signals and indicators that we’ve

discussed in this book, they can often point in the wrong

direction. Swing trading isn’t rocket science — it’s more like

a middle ground between art and science. The reality is that

unexpected events can derail even the best indicators. We
mentioned this earlier in the book – a recent demonstration

of this was given when President Trump simply put out a

tweet threatening tariffs on China. Whether you think there

should be new tariffs on China or not is completely beside

the point. For our purposes, we want to learn the lesson that

this episode provides for traders. The day before the tweet,
the markets were enjoying a massive rally. He sent the

tweet out on Saturday. First thing Monday morning, the

markets tanked. Had you invested in your sure thing that

Friday before, you would have been wiped out in one day.

The point of all this is events that are unforeseen happen all

the time. What Trump tweeted on Saturday had nothing to

do with what the moving averages and candlesticks were

doing on Friday at closing.

Even without tweets, earthquakes, and wars, when all the

indicators are pointing in the right direction, you can still

end up with a loss. The reason is that even though the

markets do display some level of order and you can use

signals to anticipate reversals and uptrends, underneath it

all the market is still a chaotic system that depends on the

actions of thousands of individuals.
Only risk 1% of your capital on a trade
With that in mind, we can get to some commonsense
approaches that will help keep your losses in check. The first

rule is to limit the amount of capital from your trading

account that you risk on each trade. At first glance, the 1%

rule seems awfully conservative. You might think that you’ll

never be able to execute a single trade. But that’s not the

case. The 1% rule is about your actual risk of loss. You can
manage your risk of loss with what’s known as a stop-loss

order. A stop loss order can be placed when you buy your

shares (as an example), and it will tell the broker to sell your
shares if the price drops to a certain level. So, if you buy

shares of XYZ for $45 a share, you can put a stop loss order

of $44 a share. If XYZ tanks, then you’re only out $1 a share

because when the stock hits $44 on the way down, your

shares will be sold automatically. If you bought 100 shares,

then you’re out $100, just $1 a share. If you hadn’t bought

the stop-loss order and for some reason, XYZ drops to $20 a

share, you’d be out $25 a share instead, which would be

$2,500.
Now consider another example, suppose that you had a
$50,000 account. Now, 1% of $50,000 is just $500. If we are

willing to risk $0.25 a share on a trade, that will allow us to

buy 2,000 shares. So, if AAA is trading at $20, then we put a

stop-loss order at $19.75.

Of course, limiting your risk this way isn’t the only way to

go. It all depends on how disciplined you are and if you let
short-term emotions get the best of you. New traders

starting out may not have a taste for the 1% rule because

they can only put $1,000 in their account, say. That would
only allow you to risk $10, which puts you in a position of

not really being able to trade anything.

Another path that you can take is to simply put the amount
you can afford to lose into your trading account and nothing

more. In the beginning, you should think of your swing

trading account as a kind of a hobby with a limited budget

until you learn the ropes. If you can afford to lose $4,000

without getting into financial troubles, then that can be a

reasonable amount of money to risk. On the other hand, if

you put in $25,000 and losing it would mean losing all the

money that you had, that would be a bad move. Sit down
carefully and evaluate the amount of money you can risk
and still pay your rent/mortgage, buy food, and keep your

utilities on.

Stop-Loss Orders
As we mentioned above, every trader should use stop-loss
orders. You can use a stop-loss order to make sure you sell a

declining asset if any further declines would make your

losses intolerable. It’s important not to get too paranoid

about losses as a swing trader, but you need to apply

common sense. The specific values you’re willing to accept

will depend on your personal situation and vary from trader

to trader. However, we can make a note – swing trading is

not day trading. Why is that important? Because a longer

time horizon often gives ample opportunity for reversals.

You can be a swing trader and set your own time horizon,

but you don’t have to close your positions in a day. So, in

many cases, it may be appropriate to allow yourself to take

a loss knowing that often, the loss will be temporary, or at

least it will not be as great as seems initially. Of course, this

isn’t always true; you’ll have to evaluate each real-world

scenario on its own merits. Some stocks that crash are not
going to recover. It’s going to depend on many factors, such

as the reasons behind the crash. Did the stock crash

because of some event that happened to the company? For

example, shares of Bayer crashed to seven-year lows when

a jury awarded $2 billion in a suit over the weed killer called

Roundup. Whether or not Roundup causes cancer – it

probably doesn’t – or whether or not a $2 billion judgment is

reasonable, are beside the point. Events like that scare off
investors. If you had invested in Bayer stock, in that case

holding onto it looking for an upswing is probably a bad

idea. The pattern of lawsuits suggests that Bayer is going to

have to make more payouts or worse.

In other cases, temporary setbacks may be just that.

Whether you can live with a temporary setback also

depends on how long you’re willing to hold onto the stock.

Are you willing to wait 9 months for an uptrend so you can

exit with a profit? If not, then you should get out now and

accept your losses.

Have preset profits in mind

One problem that plagues beginner investors is not having
rules for the kinds of profits they will take. If you don’t have
a rule, then you’re always going to be hoping for continual

upward trends. You’ll be hunched over your computer

looking for reversals and gains that never come after it

reaches the top and crashes down.

The thing to remember is upturns never last forever. So, you

need to set specific exit criteria and stand by them. For

example, some people set a gain of 10% in stock price as

their goal. If they have a long position and the share price
rises 10%, then they sell their shares no matter what. You

might have a specific dollar amount in mind. When trading

options contracts, you could set a rule that you’ll sell and
book your profits when the profit reaches $50 per option

contract.

It doesn’t matter what the details are as far as your rule, as

long as a rule isn’t unrealistic, and you stick by the rule no

matter what. You are going to miss out on some

opportunities and not make as much money as you could

have. However, more often than not, what you’re going to

be doing is protecting yourself from losses. The bottom line

is that many people hold on too long, hoping to make

another $1 in profit, and end up losing everything instead.
One way to handle this is to enforce discipline by having the

market take care of this for you. This can be done using a

sell limit order. A sell limit order will only go into effect if the
price of the asset is at or above the price specified in the

limit order. So, if you buy shares in Netflix and decide to sell

them when the price reaches $380, then you can put a sell
limit order in with that price. If the stock rises to $379 and

drops down, it won’t be triggered. If it rises to any price at

or above $380, then the order will be triggered, and your

shares will be sold automatically, crediting your account

with the proceeds. For a swing trader, having such

protection in place makes sense. It will keep you from

making predictable but disastrous mistakes.

Diversify your investments

You might be surprised to see this one in a book about swing
trading. Diversifying your portfolio is normally something

done by boring people looking to build an IRA.

However, this applies to swing traders as well. You should

never put all your eggs in one basket. In the beginning, you

may have to do your swing trading on the side for a while

before you start making an income from it. You may only be
able to concentrate on trading a few securities, but if you

can afford it, you should expand your trading activities so

that you’re not dependent on one stock or two. You can also
trade in multiple markets. There is no reason not to at least

look at getting involved in bond markets, options trading, or

newer markets like crypto. Of course, that will all depend on

how much time you have to devote to study. If you feel you

don’t have the time to push into multiple investment

markets, then at least look at doing more than one trade in

the market you choose to be involved with.
 Chapter 6: Swing Trading
Cryptocurrency
In the past decade, one of the newest trading markets to
take shape in the world is so-called cryptocurrency like

bitcoin. Let’s explore how to go about trading crypto in this

chapter.

Finding an exchange
The first problem that crops up with crypto is the fact that

it’s had kind of a mysterious black hat reputation. That still

carries on today even though trading crypto is becoming

more mainstream. One way to trade crypto that is

guaranteed legit is by using the smartphone brokerage

called Robinhood. It allows you to trade bitcoin and litecoin.

Some of the largest and legit crypto exchanges that

specialize in it include Gemini.com, primexbt.com, and

Coinbase. Also, you should note that exchange rates can

differ from exchange to exchange for the same

cryptocurrencies.

Experts in the area also recommend that you only deal with

sites that require government issued ID. Since this is still a

new area, it is a bit of the “wild west,” and trading crypto
can be risky if you’re not careful.

Actually managing cryptocurrency

There are many different coins that can be traded. The coins

are stored in a virtual wallet. It requires a public address and

a private key, just like any encrypted computer system. The

wallet can store the coins, and it can also receive coins or
be used to pay them out. The public address is given out to

others so you can exchange coins with them. The private

key allows you to send, receive, and access cryptocoins. It

should never be given out to anyone.

If your wallet is connected to the internet, it is said to be a

type of “hot storage.” Any hot storage provides ready

access to cryptocurrency. Hot wallets allow quick access but

can be vulnerable to hacking. The wallet will be stored on a

device like your computer, so you should backup important

info like private keys in case something happens to your

computer, including having it get stolen.

You can have a wallet on the exchange, or a mobile or

desktop wallet. For extra security, you can get a wallet that

has multiple signatures.

You can also store cryptocurrency in “cold storage”. This is

like putting it in a bank vault, you will have less ready

access to it, but it is going to be less vulnerable to hacking

and theft. Cold storage wallets are cut off from the internet,

so there is not any danger of hacking and so on. Crypto

stored in cold storage is not readily available for daily

transactions. However, a popular way to use cold storage

that can be quickly accessed is to use a USB stick for cold

storage. That way, you can connect it or remove it from

internet access by connecting it to your computer or not.

Special USB sticks made by a company called Ledger have

to be used for this purpose. Alternatively, you can use a

device called Trezor.

You can actually print out your keys and a QR code on a

piece of paper to create what’s called a paper wallet. While

this keeps your crypto out of reach of the computer, it also

puts up additional barriers to accessing your coins quickly. If

you are going to be a trader, then this is probably not the

option for you.

Trading on an Exchange
Finance is the most popular exchange for trading. Many

sites only allow you to purchase cryptocurrency with your

government issued money. Keep in mind that you may need

bitcoin to start trading on an exchange.

Just like on other markets, trading bitcoin will require you to

pay commissions and fees. Familiarize yourself with what

those expenses are for the exchange that you select.

Once you’ve got your cryptocurrency, then you’re all ready

to go. After that, trading crypto is no different than trading

anything else, the same indicators and charts are used, and

you can use all the techniques discussed in this book to

trade crypto.

Trading using Robinhood

If you have a smartphone, using Robinhood may be one of
the easiest ways to get into trading crypto. You can also

trade stocks and options using Robinhood. Please see the

appropriate App Store for more information.

 Chapter 7: Options Trading
Options trading is fast becoming one of the most popular
ways to get into trading on the stock market. Since options

come with a built-in expiration date, they are almost

designed for swing trading. Trading options requires lower

amounts of upfront capital and can provide huge ROI as

compared to trading stocks. Keep in mind that like any other

type of investing, trading options carry some risk.

What is an Option?
Many people aren’t clear what an option is. First and

foremost, it’s a derivative contract. A derivative contract

has a value that is based on some other asset. In this case,

that other asset is 100 shares of stock. Now, why would it

have value? This is because an option gives you the right to

buy or sell the shares of stock. Many people find this

appealing because options are priced at levels far lower

than the stock that underlies the option contract. This allows

traders to control large numbers of shares while putting up

far less investment capital.

There are two basic types of options, depending on whether

you are long or short on the underlying security. A call

option is an option that you would buy if you are bullish on

the underlying stock.

A call option gives you the right, but not the obligation, to

buy 100 shares of stock at a pre-determined price. That

price is called the strike price. For example, if you wanted to

invest in XYZ and it was trading at $100 a share, you could

buy an option contract on XYZ with a strike price of $102.

You will do this if you think that the price of XYZ is going to

increase in the near future. That is, you would be bullish on

XYZ.
When a call option is priced so that the strike price is higher

than the trading price, it’s said to be out of the money. The

reason is there isn’t any real advantage to owning the

option. You could buy the shares on the open market, but if

you exercise your rights under the option, you would have

to buy the shares for $2 more per share. That doesn’t make
sense – until you start considering that stock prices are

always changing. If the stock price goes above $102, then

the option is said to be in the money. The reason is the

option now has a lot of value since it would allow you to
purchase shares of XYZ at a lower price than they are

trading for on the market. The pre-arranged price is called

the strike price.

There is a catch. The catch is that options come with an

expiration date. And the closer they get to the expiration

date, the less value they have. Trading options successfully

generally means knowing how to hedge your risk and

paying close attention to the expiration date.

The fact is most options aren’t ever exercised. That is, even
though call options give you the rights to buy shares of

stock, the vast majority of options traders never do. Instead,

they buy and sell (that is trade) the options until they

expire, looking to make profits off of price movements of the

stock. Generally speaking, for every $1 increase in the price

of the underlying stock, the price of the option will go up by

around $0.50-$1 per share. Since the option controls 100

shares, that means that the option will be going up to $50 to

$100 in price. The closer you get to expiration and the more

the stock goes up above the strike price, the closer it will

get to changing at $1 a share. But there is a constant battle

with options between rising stock prices and the closing
time to expiration.

If an option is in the money, you can sell it for a large profit.

At the time of writing, a call option on Amazon that expires

in 2 weeks that has a strike price that is just $1 above the

share price is trading for $42. That is a per share quote, and

an option controls 100 shares. So, the option will cost

$4,200. If Amazon goes up by $100 a share – not impossible

by any means relative to its current price – you could expect

the option to go up in price to well over $10,000.

Even cheap options contracts can be lucrative. For example,

you can invest in SPY, an exchange-traded fund that tracks

the S & P 500. These options are priced at much lower

levels than Amazon, allowing you to buy contracts anywhere

from $50 to a few hundred dollars. It’s possible to double

your money easily using options for index funds, as a one or

two dollar increase in the underlying security can cause the

price of the option to go up by $50-$200. You can then sell

the option and take your profits.

Put Options
Of course, we don’t want to paint a false picture. As recent

news has shown, stocks can decline in value as fast or

faster than they rise. So, earnings on options aren’t

automatic. If the gains don’t materialize and the option

expires with a share price that is higher than the strike price
for the call option, it expires worthless. In that case, you’re

out the premium you paid for the option. Compared to

shares of stock, the premium paid will be quite a bit lower.

While the option for Amazon stock would cost $4,200 to

control 100 shares, actually buying the shares would cost

$183,500.

One of the most intriguing features of options contracts is

that you can easily bet on market downturns using put

options. It is just easier to buy put options than it is to short

stock. A put option gives you the right to sell 100 shares of

stock at the strike price. Suppose that XYZ is trading at

$100 a share. If you buy a put option with a strike price of

$90, if the share price drops to $30, the writer of the put

option would be obligated to buy the shares from you at

$90. So, you could buy them for $30 on the market and turn
around sell them to the writer of the put option and book

$60 in profit per share.

But like call options, put options are rarely exercised.

Instead, they are traded for profits, and most are allowed to

expire. You can trade options to make profits off of

downturns. If the share price drops, the price of a put option

rises.

Maximum Losses
The maximum losses that you can incur buying options

contracts are the price paid for the option, which is called

the premium. So, your losses are limited by definition.

Gains, on the other hand, are theoretically limitless. Of

course, it doesn’t work like that in reality, but potential

profits far outstrip maximum losses. You can always sell an

option at a lower price if it’s not working out for you to avoid

losing the entire premium. You can use loss limiting

techniques that you can use in any other trading, including

stop-loss orders and sell limit orders.

Tools to Use Trading Options

Options are temporary. So, by their very nature, they are
suitable to day and swing trading. Long-term investors who
like to play it safe and have a financial manager or invest in

mutual funds are by definition, not going to have much

interest in trading options.

The same indicators and tools can be used to evaluate your

options trades. However, you won’t be applying them to the

options themselves, but rather to the underlying stock. You

can also access an options calculator from tastytrades.com,

search for options data science. The calculator will

automate pricing estimates for the option. You just enter in

basic data like the current share price, days to expiration,

and the strike price for the option. It will take into account
the loss in value from closing time to expiration for you and

estimate your profits.

When are Options Out of the Money?

A call option is out of the money when the strike price is

above the share price. The breakeven point is when the

strike price + price paid for the option (per share) is equal to
the share price. An out of the money option is worth nothing

once time runs out on the option. If the strike price of a call

option is below the share price, then the call option is in the
money and can be sold at a profit, or you could exercise
your rights under the options contract and buy the shares if

desired. Some people actually do this if they actually want

to own the particular shares of stock in question.

Put options work in the opposite direction. So, a put option

is out of the money when the share price is higher than the

strike price. The breakeven point is calculated by

subtracting the cost of the option from the strike price. If the

share price goes below the strike price, then the put option

is in the money. It’s in the money because you could buy

cheap shares on the market and sell them for a profit at the

strike price.

Time Horizons for Options

The main factor with time horizons for options is the

expiration date. You can purchase options that expire on

multiple expiration dates, including some that only last for

one week. Options usually expire on Wednesdays and

Fridays, and when you look to trade options, you can find

options that expire on multiple upcoming dates, some in the

current week and others going all the way out for several

months. The longer the time to expiration, the more

expensive the option. LEAPS are long-term options that last

2 years.

A Good Way to Learn Swing Trading

Options provide a good testing ground where you can learn
swing trading, making real trades. One reason they are

good to use is the cost of investing is small, the potential

losses are self-limited, and potential profits are high.

You can begin by investing from $100-$300.

When investing, you can try out different time horizons. This
can get you used to tracking the markets over time periods

of days, weeks, and a month or so. This will help you

develop as a swing trader and come upon a strategy that

you can use over the long term.

Buying Puts and Calls

Another advantage of using options to get started is you can

learn how to short or bet against the market. That is profit

from downturns. Put contracts provide a very easy way to

do this. You can also learn about hedging since you can use

puts to mitigate the risk of investing in call options.

Looking at a specific example, consider the stock AMD. The

current share price is $26.60. A $27 call expiring on May 31

costs $1. Since it represents 100 shares, if we buy one
contract, it would cost $100. To buy some insurance against

a possible loss, we can buy a cheap put contract on AMD

that expires on the same date. A $25 put is available for

$0.77, so it would cost $77. Even cheaper puts are

available, for example, we could get a $23.50 put for $37

total.
To review, the way this would work, if the price of AMD goes

above $27, then we would profit off the call. The put option
would expire worthlessly.

Let’s say that at 7 days to expiration, AMD rises to $30 a

share. The call option would be worth $3. That is per share,
so we could sell the call option on the market for $300. The

put option would be completely worthless under those

circumstances. Our profit would be $123. Not bad, making a

$123 profit on a $177 investment. If we had simply bought

the call option by itself, we would have made a 123% profit.

Suppose the share price instead dipped to $23. The $25 put
would be worth $2, so we could sell it on the market for

$200. Our original investment was $177 – so we made a

small profit.
 Chapter 8: FOREX Trading Basics
FOREX is a very popular way to get into day and swing

trading. Forex stands for foreign exchange. It’s where the

world’s currencies are traded against one another. The daily

volume traded on the currency exchange is far larger than

that traded in the stock markets, by orders of magnitude.

Currency trading is becoming increasingly popular among

“retail” traders, which are amateurs like you just getting into

trading. Many people are making large sums off it.

In short, Forex trading involves buying one currency and

selling another in order to make profits. Supply and demand

drive prices on the Forex markets just like they do anything

else. With time, different currencies are in more demand

than others and so their prices go up. Prices go down when

traders are selling off a currency.

How Currency is Traded

Currency is traded in lots of 1,000 units. This is called a

micro-lot. If you are trading in dollars, a micro-lot will be

$1,000. A mini-lot will be $10,000, and a standard lot size is

$100,000.
Currencies are traded in pairs. This makes currency trading

a little different than stock trading. On the stock market, you

can buy Amazon (say) and then you can sell Amazon. On

the Forex market, you can only trade in pairs so you could

buy Euros with dollars and then buy Japanese Yen with
Euros, but you can’t just buy Euros and then sell Euros.

Prices on Forex are quoted in terms of the price of one

currency against another. So, you could see the price of the
dollar against the British pound or the price of the dollar

against the Euro. Again, this is different from the stock

market where prices are given in terms of individual stocks,

rather than pricing stocks against one another.

You also need to know how currency prices are listed. They

are priced to the fourth decimal place. A pip is defined to be

one one-hundredth of 100%. The acronym means the point

in percentage.
Prices of currency pairs are listed as the pair symbols with

the price it would take to use the second currency to buy

the first currency. For example, EUR/JPY would give the price
in Japanese Yen to buy one Euro, which is currently 123.29

Japanese Yen. As another example, EUR/USD would be the

price in dollars to buy one Euro, which is 1.1239. Note that

while most currencies are tracked to the fourth decimal

place, the Japanese Yen is only tracked to two decimal

places.

In order to determine the inverse, that is how many Euros it

would take to buy one Japanese Yen or how many Euros it

would take to buy one US dollar; you divide 1 by the quoted

value. So, it would take 1/123.29 = 0.0081 Euros to buy one

Japanese Yen. Doing the same for the dollar, it would take

1/1.1239 = 0.8898 Euros to buy one dollar.

During the week, currency trading goes on all over the

world. So, it’s taking place 24 hours a day in different

markets, including Europe, Asia, and the Americas. As a

result, prices are constantly fluctuating.

Profits in Pips
Currency moves are tracked in pips. So, if the currency pair

EUR/USD was at 1.1840 and it changed to 1.1880, we’d say

there was a 40 pip move. If you had bought it when it was

1.1840 and sold at 1.1880, we’d also say that you earned a

40-pip profit. However, the actual profits are in terms of lots.

For a micro-lot, a one pip move translates into $0.10. In the
example given, a 40-pip move would result in a profit of $4

per micro-lot. If we had a mini lot instead, one pip would

translate into a $1 move. So, the profit of 40 pips would

translate into a profit of $40 per mini-lot. Finally, for a

standard lot, one pip corresponds to $10. So, a profit of 40

pips would be $400 per standard lot.

Naturally, there can be corresponding losses, in the same

absolute amounts. So, if the trade went the other way, that

is supposing that we bought the currency pair at 1.1880 but

had to sell it at 1.1840, that would be a 40 pip loss, and a

standard loss would have lost $400.

When computing pips involving trades with Japanese Yen,

multiplication by 100 is required.

Currency Pairs and Charts

The leading currency in a currency pair is used as the
directional currency in a chart. That is, if you are trading

EUR/USD, in the chart describing the currency pair, the Euro

will move with the trend. Upward trends in the chart would
correspond to rising prices of the Euro relative to the dollar,

and vice versa.

Swing Trading Forex

Forex markets have high volatility. So, swing trading on

Forex will require the use of stop-losses to ensure you don’t

get wiped out. When swing trading on Forex, you will hold
your trades for several days or more.
 Chapter 9: Top Beginner Mistakes
Swing trading, like any other type of trading, carries some

risk with it. Anyone can mess up a trade, but beginners are
more prone to mistakes. In this short guide, we will attempt

to lay out some common mistakes made by beginning

traders and how you might avoid them.

Having unrealistic expectations

You may be getting into swing trading thinking that you can

make a full-time income. The truth is that you can. However,

it’s not something that is going to happen automatically. It

takes time to learn the tricks of the trade and to learn how

to properly trade in order to make profits on a consistent

basis. You should also not have unrealistic expectations

about the amount of money you will earn in the beginning.

You probably aren’t going to make a million dollars on your

first trade.

Not treating trading like a business

Some people view the stock market as a gambling casino.

But it’s not a gambling casino at all, and the techniques

described in this book are not designed to “beat” the
system. They are rooting in the mathematics that underlies

the operation of markets. In any case, when you become a

swing trader and intend to earn a full-time living from it, this

is a business. You need to treat it the way that you would

treat any other business. Many new traders think of it in

terms of making a fast buck without balancing the books

and taking it as seriously as it needs to be taken. If they

opened a McDonald’s, they’d be far more careful. You should

treat it exactly the way you would if you opened a

restaurant or a consulting firm. Most people would approach

such ventures with far more care, and if you can do so with

your trading business, while you might not make a million

dollars the first month, you will be on a sustained path to

deriving real income.

Being too anxious

Being a successful swing trader requires patience. You will
hold onto your investments for several days to possibly

weeks, and some swing traders even hold onto their trades

for months. This can be difficult for people that are

impatient. Another way that being too anxious can get in

the way is that anxious traders simply go out and make

trades that feel good but have no analysis behind them.

That might work out now and then when you get lucky, but
over time, that is a recipe for failure.

Failing to Plan
This brings us to our second beginner mistake – failing to
plan. We’ve described a large number of useful tools in this

book, and we’re only scratching the surface although we’ve

discussed the most popular ones. Before going into a trade,

you should study the security you hope to trade and make a

plan to carry out the trade. Your plan should include your

entry point, how much profit you will take, how much loss
you’re going to accept, and your exit plan. You shouldn’t go

in on a hunch and should instead study various securities to

see which ones will work out to serve your interests the
best.

Looking for a get rich quick scheme

Many people go into trading thinking that they can get rich
quick. This simply isn’t true. Yes, sometimes it happens. But

most of the time, it doesn’t. People are surprised to find out

that trading takes work and time invested in study. It is not

the get rich quick scheme or gambling casino that people
imagine. If you are looking for a get rich quick scheme, you

are setting yourself up for losses, because your mentality

will lead you to try and cut corners in search of profits.

When you do that, mistakes are likely to be made.

Being put off by all that math

There is a fair amount of math involved behind the scenes,
and wall street is full of people with math and physics

degrees that are working behind the scenes on formulas,

coming up with new derivatives contracts, or coming up

with new tricks like special moving averages. However, as a

trader, you don’t need to get involved at that level of detail.

While you will have to get some comfort level with math, it

is not necessary to go all in. Take your time and study

slowly. Nobody is going to start the first day and understand

all the charts and moving averages. However, to

successfully trade options, the trader must be able to use

and understand the charts. You don’t have to understand

how moving averages are calculated, but you need to

understand how to look at the charts and understanding

what they mean on a practical level.

Losing control with leverage

Swing traders on the stock market have access to leverage.

That is, you can borrow from the brokerage at a 2:1 ratio.

This can get some people into trouble. There is no faster

path to debt than playing with other people’s money.

Leverage can also lead some people to take risks that they

wouldn’t otherwise take. At the beginning of your swing

trading career, you should consider trading without using

leverage. Save that until later when you’re more

experienced and less likely to make huge, costly mistakes.

Not relying on multiple indicators

Earlier, we had detailed discussions of tools and indicators

that can be used to determine when to buy and sell. One

common mistake made by beginners is to see a buy or sell

signal in one indicator and get anxious and either enter or

exit their position. Sometimes that will work, but to protect

yourself, you need to use more than one indicator before

making any moves. The cold reality is that no one indicator

is right all the time. When you see a buy or sell signal,
confirm it before making your trade.
Chapter 10: How Much Money Do You
Need to Get Started
An important issue that many beginners want to know is

how much money they need to get started. In this chapter,

we will have a look at reasonable capital requirements and

also discuss the use of leverage, which will let you borrow

from the brokerage.

Minimal Capital Requirements

The old saying goes you need to have money to make

money. But is that really true? Well, it is to some degree, but

maybe not as much as you’re expecting. You probably aren’t

going to be able to do many swing trades digging quarters

out of your couch. That said, the amount of capital required

to start dipping your toes in the water doesn’t amount to a

huge amount of money.

The first thing to note, which we’ve touched on a bit

already, is that swing trading isn’t bound by the same

constraints as day trading. A day trade is a specific position

that is opened and closed on the same trading day. To

become a day trader, you have to get approved by your

broker. People that day trade have day trading accounts,
and day traders are locked in with specific capital

requirements. The minimal requirement most brokerages

have is $25,000 cash.

Brokerages do this because day trading is considered a very

high-risk activity. That isn’t to say everyone who day trades

loses their shirt, but those that succeed in day trading are
very careful and methodical traders who spend a great deal

of time studying the market.

Remember that brokerages will designate you as a day

trader if you make 4 or more-day trades within any 5-day

trading period. You could get by making 3-day trades in a 5-

day period without the day trader designation, but if you are
pursuing swing trading, then it should not be necessary to

make those kinds of trades. The only situation where you

should close a position on the same trading day if you’re a

swing trader is in the special case that the stock makes a

sudden profitable move that would allow you to book huge

profits. In our view, you shouldn’t “wing it” in these

situations, you should set up sell limit orders that automate

this process for you. Set a rule on how much of a change to

the upside you want to trigger a sale and place the order.
Generally, large moves like that are rare so its not going to

happen very often, and if you are following the techniques

of swing trading, you’ve probably entered your position days

before some event (like an unexpectedly upbeat earnings

report) has triggered a sell condition.

Of course, you need to be just as serious with swing trading

– but swing trading is a lower risk activity. That isn’t to say

you can’t blow a large amount of money swing trading, you

absolutely can. But because it’s a more careful type of

trading, you aren’t trying to unload everything in the heat of

the moment in the middle of the day — it’s considered to be

a more moderate risk activity.

So, let’s get to the bottom line. Since swing trading isn’t

regulated in the same way, the amount of capital you need

to get started is going to depend on your goals and trading

style. We advise that you start small. In fact, many stock

trading sites have simulated systems you can practice on.

You can enter into trades that aren’t real (i.e., don’t use real
money and aren’t actually executed by a broker) but they

work in real time as if they were real. So, you can do a

simulated trade and see how it works out. Spending a

month or so doing this type of simulation will help you train

before going out and doing actual trades. Many people will

be too impatient to do this, but you wouldn’t go out and

play for a football team without training first – so why

wouldn’t you do the same here?

After your month of simulation training, we recommend

starting out with small amounts of capital if you’ve never

done real-time trades. This advice will be ignored by the

impatient, but everyone should be cautious when starting

out. Begin by trading older companies that have more

stable share prices over the time frames used for swing

trading. You should also start out with less than $1,00o and
only trade a few shares at a time, to get used to the

process.

Consider Options Trading

Not everyone wants to trade options, but we recommend
putting some capital toward trading options at least in the

beginning. The main reason is that you can begin trading

options with hardly any capital. People are put off by options
because there is a lot of sophisticated lingoes associated
with them, but once you take some time to read up and

study options, you’ll discover that they really aren’t all that
complicated. The only capital that is put at risk is the

premium, and often you can trade options for under $100.

Trading options can be lucrative in itself, but if that is not

your long-term goal, you should still consider doing it for a

month. That way, you can get used to reading stock market

data and charts and using tools like moving averages to

make your picks. It’s a little bit more complicated than

stocks because of the expiration dates, but that also

enforces a swing trading mentality. An option is not going to

be something you’re going to hold for very long; you are

looking to book your profits in a matter of days or weeks.

Options trading can be done at low cost and even

commission-free on some platforms like tastytrade or

Robinhood. Find the platform you like best and use that.

Tastytrade is good for educational purposes.

Planning for Risk

Ultimately, the amount of capital you need will depend on

two factors. The first is the amount of capital that you can
comfortably put up to invest. As mentioned before, if you
won’t be able to pay your mortgage because you’re pouring

money into the markets, then you’re putting too much

money up. The rule of thumb to apply is that you should put
up an amount of money that you can afford to lose

completely. That doesn’t mean it wouldn’t be painful to lose

the money, but you should be able to pay your basic living
expenses in the event that you lost all of it. But frankly, you

would have to be an impulsive and careless trader to lose

every dime with swing trading that just shouldn’t happen.

The second factor is your tolerance level for risk. The

standard recommendation, as noted earlier, is 1% per trade.

Many others recommend 2%. It is possible to risk more in

the beginning, provided you have an outside source where

you can replenish the capital. We suggest this because, in

the beginning, you might only have $500 to invest, period,

but we believe that shouldn’t constrain you from getting in

the same and learning the trade.

With a 2% risk level, that means if you have $10,000 in your

account, then you can risk $200.

Whatever risk level you decide to go with, make that a rule

for each trade. To enforce the rule, you will use a stop-loss
order with each trade. Simply saying you’re only going to

risk 2% isn’t going to work, because when you’re in the heat

of the actual trades, emotions can take over. What often

happens is that when an investment is going bad, people

start getting consumed with hope and fear simultaneously,

and then their judgment starts to go south. In practice, this

means that you’ll hold onto a losing investment a lot longer

than you should and lose a lot more capital.

The first step is to determine the number of shares you will

trade. You can work backward or forward on this one. Let’s

say that you’re going to trade a stock that is currently $50 a

share. If you decide that you want to place your stop-loss

order at $49, the trade risk is $1. Trade risk is given by the

amount per share that you are willing to risk. If your account

is $10,000 and your risk tolerance is 2%, then your total

amount to lose is $200, and so you can buy:

Total risk per trade/trade risk per share = $200/$1 = 200

shares
Well golly, that would be your entire $10,000! Of course, in

most cases, you’re not going to put your entire principal on

one trade, but with the stop-loss order in place, it would be
pretty low risk. In a worst-case scenario, you’d end up with
$9,800. However, it’s important to note that in many

situations, it will be reasonable to put all your money on a

single trade. We can think of several examples. Suppose

that Samsung or Apple is about to release a slick new phone

or issue an earnings report that people are expecting is

going to be stellar. There is always some risk, investors are

often disappointed by new product releases, and the

earnings report might actually fail to meet or beat

expectations. However, such events are often followed by

big stock rallies.

Another case where a large investment might be warranted

is when you’re investing in an index fund. Key times to

make these types of investments often fit around the

release of jobs reports or release of GDP numbers. When

these data released by the government turn out to be good

numbers, large stock market rallies follow. Of course, your

timing in these kinds of trades will be critical. It’s possible to

get in the day before and book large profits, however.

At other times, the market will be rising because of other

reasons; maybe the economy is just in a growth spurt.

These are also good times to load up on one index fund. In
order to determine when there is a good time to enter the

trade, you will use the tools discussed in this book. So, you

will spend time looking at moving averages, candles, and

Bollinger bands. When you see a strong buy, signal

confirmed by multiple indicators, then you can enter your

trade.

Bottom Line – How Much Do You Need?

Since there are no specific requirements to become a swing

trader, the amount you need is a personal decision. You can

do a quick analysis as we did above to see what you could

risk with an account that has $X. You will also want to look

at the stocks that you’re interested in trading. Amazon is

trading over $1,800 per share at the time of writing. AMD,

on the other hand, is trading at $27 a share. Amazon is a

stronger company, but obviously, you’re going to be looking

at different stop-loss levels for stocks that are priced so

differently.

When making your trades, most of the time you’ll want to

leave money in the account so that you can pursue multiple
trades, with the possible exceptions of the scenarios we
painted above.

So, there is no hard answer to this question. It’s something

that you’ll need to determine for your own personal

situation. You can start with trading as little as one share,

but we’d recommend going with a service like Robinhood if

you decide to do that because you won’t want your tiny

trades to be eaten alive by commissions. You might wait

until you can put at least $500 before getting started, but

you can use trades as small as you like to get used to the
process and methods.

Using Leverage
Swing traders can access leverage from their brokers. The
first concept to understand is margin. While it sounds

mysterious, margin is simply borrowing funds from the

broker so that you can make larger trades. Not everyone is

going to be able to do this, and your financial fitness will be

evaluated before the broker will allow you to borrow to make

trades.
Leverage is generated by margin. What leverage means is

simply that you can trade a larger amount than you could
using your own principal. Leverage is described in terms of

ratios. So if leverage is given as 3:1, that would mean that if

you had $10,000 in your account, you would be able to

borrow from the broker such that you could make a $30,000

trade or enter multiple trades that summed up to $30,000.

Obviously, this approach carries some risk and a very large

risk, indeed. If the trades you enter completely go south,

you could end up not only losing your principal but also
owing the broker a large amount of money.

Swing traders by convention can use 2:1 leverage. So, if you

have $15,000 in your account, you would be able to buy

$30,000 worth of stock. Forex traders can use 50:1

leverage.
Leverage is risky, but it also can multiply profits. Suppose

that a stock is trading at $20 a share and they are about to

release a new smartphone everyone believes will take the

market by storm. Without leverage, if you have a $10,000

account, you can buy $10,000/$20 = 500 shares. Suppose

they release the phone and it has a surprise feature

everyone wants so the stock doubles in price over some

time period. You close your position at $40 a share. Your

total revenue is $20,000. Less your original investment of

$10,000, you made a $10,000 profit. You doubled your

money – an unusual situation for sure, but it could happen.

And it’s happening now for the sake of example.

Suppose that you used leverage and at 2:1, were able to

buy $20,000 worth of stock, borrowing $10,000 from the

broker. That means you would have been able to purchase

1,000 shares rather than just 500. After all is said and done,
you’d have 1,000 shares x $40/share = $40,000. You pay

back the broker the $10,000 you borrowed, leaving you with

$30,000. You’ve earned a $20,000 profit since you started

out with $10,000 in the account. By using 2:1 margin, you

doubled your profits (surprise!).

You can also magnify your losses. What if instead, the

company announced that it was canceling the phone and

the share price dropped from $20 to $9 a share. If you had

invested your own money, you’d end up with $9 x 500 =

$4,500 so end up losing $5,500.

Had you borrowed the $10,000 from the broker, you’d have

$9 x 1,000 shares = $9,000 left over. And you owe the

broker $10,000. So, your account would be wiped out. You’d
have to deposit money from external sources to settle with

the broker and hopefully restore some principal to the

account.
Of course, this example illustrates the value of stop-loss

orders. If you had put a stop-loss order of $19, then you

would have ended up with $19 x 1,000 shares = $19,000.

You’d be able to pay the broker back the $10,000 and have

$9,000 left in your trading account. A loss, but not a

catastrophic loss.

One Danger with Stop-Loss Orders

Many advisors suggest putting stop-loss orders on the order

of 10 cents or 50 cents. Honestly, this is too conservative. If

you’ve noticed something from all the discussions about

data in this book, you realize that financial instruments

don’t always move smoothly in one direction. They zigzag in

jagged fashion on their way to the top (if they are going up).

If your stop loss order is too conservative, you might get

thrown out of a position too early when there is a

retracement. You probably don’t want that to happen – but

the level you put for your stop-loss order is a personal

decision based on your own financial situation and risk
tolerance. However, always use stop-loss orders. That is a

critical lesson. Better to protect yourself from some level of

loss than lose it all.

 Chapter 11: Exchange-Traded Funds
We’ve decided to put in a special chapter on exchange-
traded funds because these offer a special opportunity for

beginner investors. Exchange-traded funds are often

described as mutual funds that trade like stocks. That is true

as far as it goes, but exchange-traded funds also allow you

to do a lot more than you can just buy individual stocks. You

can track indexes, like the Dow Jones Industrial Average, S &
P 500, or Russell 3000. You can also invest in overseas

markets using exchange-traded funds. Another huge benefit

is they allow you to utilize the stock market to invest in

commodities, real estate, and other assets that you

wouldn’t normally be able to trade as stock. Using gold as

an example, an exchange-traded fund works in the following

way. A brokerage buys up a bunch of gold. Then they issue

shares for ownership. Then as the price of gold fluctuates,

you can profit from that without having actually to own the
gold. Of course, with such an arrangement, you can’t take

physical ownership of the gold, your only rights are to the

shares so you can buy shares or sell shares and profit. But
as a trader, you are probably not interested in actually
owning the gold anyway. So, exchange-traded funds are an

exciting way to get swing trading on the stock market while

at the same time in a virtual sense trading on many

different markets. Exchange-traded funds are often known

as ETFs.

Where to Buy Exchange-Traded Funds

Buying exchange-traded funds is simply a matter of knowing

the ticker symbol and trading them on the stock market.

There are many funds available offered by different

companies, but two of the most popular are iShares and

State Street SPDR. Before investing in a particular fund,

you’ll want to look it up and examine different factors such

as historical returns. Although different companies will offer

the same product on the surface, they won’t perform the

same way because the investments may be weighted. For

example, I could make up a fund made up of Amazon,

Google, and Facebook and call it the AGF exchange-traded

fund. Then I could buy 1,000 shares of each and then divide
up the total into shares of my own that investors could buy.

In this scenario, each company’s share price would have an

equal impact on the share price of my AGF fund. Someone

else could offer a fund based on the same underlying

companies, but they could weight them differently. Let’s call

their fund AMOG. Suppose that in their fund, they buy 2,000

shares of Amazon, 1,000 shares of Google, and 500 shares

of Facebook. Due to the different weights, their fund will

have different historical performance as time goes on. So,

you’ll need to look at individual funds in each case that

you’re interested in. For example, SPDR, iShares, and

Vanguard all offer ETFs that track the S&P 500, but they
may not perform in exactly the same way or have the same

share prices.

Trading Options on Exchange-Traded Funds

Remember that in every sense of the word, an exchange-
traded fund is a stock. That means you can trade options.

This opens up some interesting scenarios. For example,

SPDR offers an exchange-traded fund for gold, with ticker

GLD. You can trade options on this fund, so you’re basically

trading options on gold. Technically that isn’t true, but it’s

the basic reality. You’re trading options on the changing

price of gold and investor sentiment on gold. You can do this

for anything that an ETF is based on, including real estate or

consumer staples and natural resources. Currency ETFs are

also available so you can trade ETFs based on FOREX as

well.

iShares and SPDR

As we’ve noted, you should compare funds offered by

different companies to find the ones that fit in with your

plan as far as to share price and historical performance.

However, for the sake of demonstrating what is available in

ETF investing, we will look at iShares specifically. You can

visit the company at iShares.com. State Street can be found

at spdrs.com.

ETFs are offered in the following distinct asset classes:

Equity (stocks)
Fixed income (bonds)

Commodity

Real estate
Global funds are available for the United States. First, let us

have a look at some of the offerings in a commodity. There

are 358 different funds offered by iShares with six funds for
commodities, including for gold and silver. The GSG fund
gives you a broad exposure to commodities that even

includes the livestock and energy sectors.

You can also buy shares in ETFs that track major indices of
the stock market. Common choices offered by SPDR include

DIA, which tracks the Dow Jones Industrial Average, SPY,

which tracks the S & P 500, and SPSM tracks small caps. You

can also invest in many different sectors. For example, XLV

can be used to invest in healthcare while XLE invests in the

energy sector.

ETFs are also available that are set up according to asset

allocation. With bonds, you can invest in everything from

junk bonds (‘high yield’) to US Treasuries.

Summary
Investing in ETFs may be something you are interested in or
not, but they offer several advantages. The first is automatic

diversification. You can find funds to invest in different

sectors, different company sizes, and different markets. You

can also invest in hard assets like gold without actually

having to buy and sell actual gold, and you can invest in

bonds as if they were stocks. Another advantage is being

able to track market indexes. You could go out and buy
shares in all 500 companies making up the S&P 500, but

that would take an enormous amount of capital. SPY saves

you the trouble. Tracking indices isn’t as exciting as trading

FOREX or individual stocks, but over time can generate as

much or more profits.

Another advantage of ETFs is they give you access to

foreign markets without the associated risks of investing

directly. Investing in foreign markets can carry a great deal

of risk, as some foreign markets lack the legal protections

that US markets offer investors, and some are unregulated.

In addition, currency exchange may be necessary to invest

in overseas markets, making it more difficult to carry out

investments and leaving you with losses that might be

incurred by currency shifts. Using ETFs removes all of those

risks allowing you to invest in Europe, Japan, Latin America,

or Asia as if they were nothing more than regular stocks

traded in the United States.

 Conclusion
Thank you for taking the time to read Swing Trading 2019:

Beginners Guide to Best Strategies, Tools, Tactics and

Psychology to Profit from Outstanding Short-Term Trading
Opportunities on Stock Market, Options, Forex, and
Cryptocurrencies. We hope that you’ve found the book
informative and educational and that the information

presented herein will help you develop your own trading

plans and become a successful swing trader. We sincerely

wish all readers the best of luck in their trades! If you found

this book useful, please drop by Amazon and leave an

informative and constructive review. We really appreciate

the help!

Swing trading is a strategy that attempts to take advantage

of price swings in the markets. The goal is to buy low and

sell high, realizing profits from trades that last 2 days up to

several months in time frames. There are no hard rules

about the time frames you use, that is up to each investor.

However, to be swing trading, you will have to hold your

trades at least overnight. Many people attracted to active

investing are not patient enough to do this, but rewards are
available for those who can master this strategy. Swing

trading has a goal of realizing capital now, while long-term

investors seek to build up their investments over decades.

To be successful at swing trading, you will have to beat the

market in performance. If you don’t do so, then you might

as well park your money in a mutual fund and wait for the
returns. The good news is that many swing traders do beat

the markets and earn a very substantial income from swing

trading. It’s entirely possible to earn a six or seven figure

income from swing trading but remember that most people

will fail to do so and no results are typical. But if you are

dedicated and work on it daily and keep your discipline, it’s

entirely possible to enter the ranks of the successful.

Swing trading offers a great opportunity for small investors

to become traders and rapidly grow their own trading

business. Unlike day trading, the risk is somewhat mitigated

since you’re not making trades by the hour or even by the

minute. The stress level is a lot lower, and you don’t have to

be hunched over your computer all day every day in case

you need to do a quick sell off or place a buy order. For

those who are interested in taking an active role in their
investing but either don’t have the time to work on it full-

time right now or the inclination to do so, swing trading

offers a solid middle ground between conservative, long-

term investing and day trading. Moreover, swing trading

doesn’t have any capital requirements. You can get started

as large or small as you like, rather than having to deposit

$25,000 as you would be required to do for day trading.

Swing trading also offers a training ground if you actually do

want to become a day trader. It can offer you the

experience you need to be a successful day trader without

the time pressure so you can learn how to correctly utilize

indicators and other tools that you would use while day
trading. And this can be done under far less pressure. You

can also use swing trading as a springboard into day

trading. In other words, if you want to be a day trader, but

can’t deposit the amount required and don’t have much

trading experience and so draw a skeptical eye from your

broker, you can use swing trading to raise the capital and to
gain valuable trading experience.
Perhaps the biggest advantage of swing trading is that the

techniques are entirely general. So you can use swing

trading techniques on the stock market, with Forex trading,

trading futures or commodities, with cryptocurrency, or

trading options. You can stick to one of these that you are
interested in or trade in all of them. Whichever path you

take, we wish you the best of luck and hope you earn high
profits!
SWING TRADING 2019 BOOK DESCRIPTION

Learn the techniques of Swing Trading – and develop your

own plan to start building an income.

Day trading can be intimidating and requires a lot of capital

to get started. And yet the possibilities of making fast profits

with active trading appeal to many. Enter swing trading, an

exciting way to make money on the markets using many of

the same techniques but without the huge capital

requirements of day trading!

Now more than ever people are looking for new ways to

make money, and they don’t want to depend on a

conventional job or the economy. When done correctly,

swing trading allows you to earn solid profits on stocks,

bonds, options, crypto, futures, commodities and FOREX.

Swing trading can be profitable but can also be risky if you

don’t know what you’re doing. This book will help you learn

the ins and outs of swing trading so that you don’t go in

blind.
Learn what swing trading is and what the

requirements are to get started.

 Find out the secrets expert traders use to make fast

profits.
Learn to spot buy and sell signals like a pro!

Swing trading can be used with stocks, options, crypto

and with Forex.

Use options to score big profits, no matter which

direction the stock market goes.

Apply swing trading techniques to index funds to take

advantages of swings in the overall markets.

Learn about the exciting new world of crypto.

Become familiar with buy and sell signals developed

especially for Forex.

Find out the secrets behind moving averages.

Bollinger bands are explained in plain Engish, so you

don’t need a mathematics degree to understand.

Get started without huge amounts of capital.

Find out how to avoid the day trader designation.

If you want to learn about swing trading and get up and

running quickly, Swing Trading 2019 is for you.

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