Tag: tehnical analysis

Swing Trading Fundamentals

by adminTechnical Analysis4 Comments on Swing Trading Fundamentals

What is swing trading?

I am sure that a lot of you have heard the term swing trading. For me it is a cool trading strategy, where you take advantages of market fluctuations. Unlike day trading, where you do not want to keep the stock at the end of the day, with swing trading you hold the stock for an extended period (usually 5 – 20 days, or even more). According to Investopedia.com the holding period can range between a few days to several weeks.

Why is it so appealing?

The initial time investment to find the right stock that experiences big fluctuations in price is large. But later you can invest 30 minutes to 1 hour in the evening to plan your orders for that week/s. Then you set your opening order, stop loss and take.

When the market opens you interpret what is happening with the stocks and you determine if you want to proceed with your orders.

I usually find a stock that had a significant loss or where the uptrend is due to some report. When I have interesting stocks, I try to read a bit about the situation. Also I try to find apps that report on these stocks. This helps me filter out the stocks. Mainly you do not want to invest into a company that is failing.

If you look at the stock graph below, it is visible that the stock has some level of support when it is good to buy it and some level of resistance when one should sell it. You can use technical analysis to determine where a good point is to buy. But keep in mind, past performance is not a indicator of future performance.

If we focus on a smaller period it is visible that you can make money by buying the stock when it reaches the red line and selling it when it is near the green line. Also, it is noticeable that the stock has a swinging behaviour. It is going from a high to a low and vice versa. This is why this type of trading is called swing trading. Because you are trying to take advantage of the swing of the stock price. These green and red lines are just a representation of technical indicators.

Pros and Cons

It is visible that you can open a position on Day 1 and on Day 3 have a profit of 10-20%. The negative side is if you do not know when to sell, your profit quickly diminishes.

You also do not pay that many fees like day trading. Unlike day trading you do not have to constantly monitor your stock.

Conclusion

Looking at Swing Trading it is visible that it offers a time efficient way to profit from price change in the short-term. Imagine you invest in a stock in January, by February the stock price has risen by 30%. In July it drops to the initial 10% increase. At the end of the year the annual price increase is 15%.

In the case that you invested only in January your profit would be only 15%, but in the case that you tried to follow the swing of price, your profit would have been a lot bigger.

Resources:

[1] – https://www.investopedia.com/terms/s/swingtrading.asp

[2] – https://www.etoro.com — Graphs were take from eToro

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How to use the Williams Percent Range (%R)

by Igor JakovljevicTechnical Analysis1 Comment on How to use the Williams Percent Range (%R)

Technical analysis is used to determine when to buy or sell stocks, there are different indicators that can be used for this, but in this post I will talk about the %R indicator.

What is the %R indicator?

One of the first indicators that I found when searching for technical analysis was the Williams Percent Range or %R indicator. This indicator tracks the momentum of a stocks price and describes if it is oversold or overbought. It can be used to determine when to enter or when to exit a market. That is when to buy stock or sell them.

Oversold means that too many traders have opened a sell position on the stock and expect that the price is going to drop even more. This has decreased the value of the stock and it is a good moment to buy the stock.

Overbought means that traders have bought so many stocks that the price of the stock has risen. When this happens there is a chance that the price will drop and normalise.

How to use the %R

The William %R moves between 0 and -100, when it is above -20 (from -20 to 0) then the stock is overbought, when it is below -80 (from -80 to -100) then the stock is oversold.

On the picture below you can see how the indicator moves from oversold (pink area) to overbought (grey area). But what does this mean for an investor?

When the %R is overbought (grey area) it is a good moment in time to sell the stock and vice versa. When the indicator exits the pink area or is in the pink then you should buy the stock.

wiliams indicator graph simple

But oversold and overbought do not give 100% sure indication of trend reversal. They simply mean that the price has reached a high or a low in comparison to previous data. But when a price reaches a low it can mean that it will revert to a uptrend.

In order to have a better idea when to sell or buy, you should always use more indicators.

Example of Usage

Below you can see what I did in the case of this stock. At “Point 1” I saw a good indicator that the market is going to turn, because the stock was oversold. I bought $500 worth of stock, the stock jumped by 1.4%. At “Point 2” I sold my stocks and make $7 in a matter of 4 minutes. Then at “Point 3” I bought the stock because I though the trend is going to jump high, but it just jumped by %0.4, but this time I invested $507, so I earned an additional $2,028. Then my 30 minute slot for trading a day was gone, so I had to stop trading.

Conclusion

Like many other indicators it tries to predict future outcomes based on previous data, which does not work that good in most cases. Indicating that a stock is oversold or overbought does not mean that the price will reverse. It only means that it has reached the peak or bottom in comparison to previous data. It is important to use other indicators in combination with this one to make a better decision.

Take a look at the post about Swing Trading. You can use this indicator also for Swing Trading.

Sources:

[1] –  https://www.investopedia.com/terms/w/williamsr.asp

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