Category Archives: Swing Trading

Swing Trading

Top 10 Trading Books

There are many good swing trading books out there on every topic. The following are the top 10 trading books on short term swing trading in my opinion. Technical analysis is mainly used for swing trading or day trading purposes. Technical analysis shows a trader how to use stock chart to find trade setups, and buy and sell short term for profit. Long term investors should read books about fundamental analysis. If you are a trader or learning how to trade stocks, below are the best short term stock trading books that you should have on your bookshelves.

Best Technical Analysis Books

Below are the best swing trading books:

1. Technical Analysis of the Financial Markets by John J. Murphy

This is a very comprehensive technical analysis book and it gives you step by step instructions on how technical indicators work and how to apply them in real life trading. John Murphy teaches technical analysis concepts, including support and resistance, candlestick trading, oscillators, and how they can be applied in the futures and stock markets. These concepts are timeless and presented with specific examples and stock charts. If you are a stock market beginner and looking to start short term trading, this is the first book you should pick up. It is a great reference book on technical analysis and it is not too wordy. From learning how to read stock charts to understanding technical indicators, you will gain a nice overview of the field of technical analysis.

2. Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder

Trading for a Living is a great book where it teaches you 3 major concepts in short term stock trading: Psychology, Trading Tactics, and Money Management. You will need all 3 of these skills in order to survive and make money trading stocks. Many traders lose money and neglect the importance of trading psychology. Alexander Elder teaches about trading psychology and how you can use it to improve your profits. The book teaches you to focus on making good trades by helping you understand market psychology and why traders act the way they do. You will start to see that the reason why you buy or sell a certain stock at a certain time is often related to your emotion. Elder also gives us an overview of technical indicators and how to use them. Whether you are a stock market beginner or an experienced trader, you will learn something new from this book.

3. High Probability Trading by Marcel Link

This book has some unique insights on how to use technical indicators which you won’t find in any other book. Again, you will learn how to use technical indicators like stochastic, MACD and how to apply them in swing trading. Marcel Link shows us how to read charts and provides us examples with detailed analysis. He also shares with us trading rules to follow such as don’t rush into a trade or buy based on the news. These rules can help you avoid losing all of your money. Overall, this book is a great a comprehensive guide to technical analysis and how to become a better trader.

4. Profitable Candlestick Trading: Pinpointing Market Opportunities to Maximize Profits by Stephen W. Bigalow

If you want to make money swing trading, understanding candlestick patterns is the key. Japanese candlestick charting is one the most profitable ways to trade the market and Stephen Bigalow will teach you what you need to know to get started. By learning candlestick trading, you can spot trend reversals before other investors. You will learn all the basic candlestick patterns and reversal patterns that allow you to jump on a trade before the beginning of a trend. Bigalow discusses important candlestick reversal patterns and signals, including the Doji, Engulfing Patterns, Harami Patterns, the Inverted Hammer, the Hanging Man, the Shooting Star, and Dark Cloud Cover. You will learn how to apply these candlestick patterns to your real life trading and how to recognize profitable trade setups. This candlestick book will help you to find trades that have the maximum potential for profitability. If you want to learn how to profit with candlestick formations, this is a great book for you to get started on.

5. How to Make Money in Stocks by William O’Neil

This is both a technical analysis and fundamental analysis book written by William O’Neil, founder of Investor’s Business Daily. The author uses his CAN-SLIM investing method in the 1960’s to make himself a multi-millionaire. The CAN-SLIM investing strategies still applies today. It is a 7-step process for minimizing risk and maximizing gains. The seven parts is as follows:

  • Current Earnings
  • Annual Earnings
  • New product or service
  • Supply and demand
  • Leader or laggard
  • Institutional sponsorship
  • Market Direction

O’Neil goes into depth about his method and techniques for finding winning stocks. He offers tips on picking the best stocks, mutual funds, and ETFs and provides us with over 100 past charts of the most profitable stocks in history. This is not a pure technical analysis book, but certainly one of the best trend following books.

6. Come Into My Trading Room: A Complete Guide to Trading by Alexander Elder

This is one of the first technical analysis books that I read on technical analysis and it is the 2nd book written by Alexander Elder, the author of “Trading for a Living“. This book shows you how to apply the trading strategies that you learn from “Trading for a Living” in great detail. You will see how Dr. Alexander trades and applies his own trading systems. This book reviews the basics of trading stocks, futures, and options as well as necessary psychological tactics. Edler presents less known indicators and shows us how to combine different indicators, such as EMAS and MACD. He explains the importance of creating a trading journal and gives us sound money management rules to help us maximize our profits. By learning about Elder’s three M’s (Mind, Method, and Money), you can train yourself to become a disciplined and successful trader.

7. Short-Term Trading in the New Stock Market by Toni Turner

Whether you are a swing trader or a day trader, this is a good book to learn about trading skills and trading strategies. Toni Turner focuses on helping traders find profits in short-term stock movements. You will learn about the author’s successful 7-step approach to the stock market. Turner discusses how to create our own trading plan to maximize gains and lower risk. She also teaches us how to analyze market cycles and find profit opportunities. You will learn about risk-reward ratio and when to enter and exit a trade. Some of the key buy and sell signals he details includes trends and trendlines, candlesticks, momentum indicators, and volume. This book is great whether you are swing trading, position trading or selling short.

8. A Beginner’s Guide to Day Trading Online by Toni Turner

This is a great day trading book for those of you who are thinking about day trading online.  Toni Turner shows us how the market works in a step-by-step matter so that you can day trade in today’s market. She provides us with the latest information on mastering the financial markets, including new trading products such as ETFs (exchange traded funds) and E-minis. She also teaches us decimalization of stock prices and the best entry and exit points to maximize our profits. She covers basic charting patterns that are essential to trading and explains them in simple terms. Day trading requires strict discipline and this is a great book to get started. I would also recommend this book for those who are swing trading as many of the same concepts apply.

9. Encyclopedia of Chart Patterns by Thomas N. Bulkowski

Encyclopedia of Chart Patterns is yet another great book on technical analysis and chart patterns. Thomas Bulkowski shares how to trade the important events, including quarterly earnings announcements and stock upgrades and downgrades, and gives us information on what happens after these events occur. It is a very detailed book with over 1,000 pages and contains 53 chart patterns and 9 more event patterns. He shows us what signals to look for and how failed patterns look like and why they failed. You can use his stock market strategies to increase your profits and minimize risk. This book is a great read for stock market beginners.

10. Entries & Exits: Visits to 16 Trading Rooms by Alexander Elder

This book is a compilation of trading strategies used by 16 traders who live in different countries and follow different markets. Each of the traders walks you through a winning and losing trade, showing his or her signals on the charts and explaining his or her analysis. You will see how they trade and how they apply their trading strategies. By studying how successful traders select trades and make their decisions, you will learn to become a better trader. Concepts that you will learn include trading psychology, money management, record-keeping, and analyzing stock charts. This book is an easy read, but not for stock market beginners. You should at least know how to use technical indicators before you pick up this technical analysis book.

Free Trading Ebooks

The following are 3 ebooks on how to trade using technical analysis and stock chart patterns.

1. Most Inspiring Trading Strategies

trading-strategies

Learn the 3 strategies that expert traders are using to beat the Forex and the stock markets. These trading strategies may give you inspiration on how you trade the market.

2. Technical Analysis Ebook

technical-analysis-book

Learn how technical analysis work and how to use trend lines to recognize profitable trade setups.

3.  10 Keys to Successful Trading

trading-success

Learn the 10 keys that successful traders follow in order to make consistent profitable in the stock and the Forex market.

 

uptrend channel msft2

Swing Trading Strategies

One of the main appeals of swing trading is being able to capture significant gains in less than a week, and without having it to be a full-time job. Of course, you must still work hard to find these short-term opportunities to take advantage of. It is helpful to understand some of the swing trading strategies that successful traders use and it is important that you have a set of your own trading strategies.

First, let’s briefly go over the definition of swing trading.

What is swing trading?

Swing trading is a short term trading method used for trading a variety of investments, such as stocks, bonds, commodities, options, and currencies. Unlike day trading where positions typically last only one day, swing trading positions usually range from two to five days, but can last as long as two or three weeks. The objective of swing trading is to find the overall trend based on chart patterns. Swing traders use technical analysis to make predictions and disregard fundamental analysis. They aren’t interested in the intrinsic value of stocks, but rather they look for stocks with short-term momentum that can allow them to capture gains in just a few days.

Swing Trading Methods

Markets often go nowhere. They usually rally a few days, decline a few days, pause and then rally again. Small swings in the markets are common and it is our interest to capture profits from these small swings.

Most of the swing trading strategies involve studying chart patterns to find trade entry and exit points. These strategies differ and there isn’t any one “right” strategy. Every trader has his or her own preferred methods and strategies. Study and apply these strategies to different charts and see which ones work best for you. You can also have more than one strategy.

Trend Following Strategy

Most swing traders trade in the direction of the current trend and assume that the “Trend is your friend.” Trend following is the most popular type of swing trading strategy where you find a trending stock and trade along its trend.  This strategy is used by both long-term investors and short-term traders. For the purpose of swing trading, the trend following strategy is used to spot patterns and trends that happen over a short period of time. For example, if the security is in an uptrend, the swing trader will be bullish and go long on the security by buying shares, call options, or futures contracts. The trader plans to hold the security short-term and sell when he or she sees signs of reversals. Likewise, if the overall trend is down, then the trader will be bearish and can short shares or future contracts, or buy put options.

Drawing Trend Lines
It is helpful to know how to draw trend lines on a stock chart. A trend line is a straight line that connects at least two price points and acts as a line of support or resistance. An uptrend line has a positive slope and is formed by drawing the trend line along the lowest points in the trend without letting the line cross through prices. The second low point must be higher than the first low point in order to have a positive slope. A downtrend line has a negative slope and is formed by drawing the trend line along the highest points in the trend without letting the line cross through prices. The second high point must be lower than the first high point in order to have a negative slope.

You can apply trend lines to find securities with channel patterns. Channel patterns serve as a trading range and consist of two parallel trend lines, where the lower trend line acts as support and the upper trend line acts as resistance.

Trend Following Entry and Exit Points
Swing traders normally enter the market after the trend has established itself, betting that the trend will continue. Below is an example of a trade that I executed. The first green arrow is where I entered the trade. Microsoft was one of the stocks that I was watching and I saw that the uptrend validated itself, as indicated by the third orange circle. I typically wait for at least three to four points to hit my trend line to confirm the trend’s validity before I take any action. As the price bounced up from the third circle, I bought shares. About a week later, the stock hit my target price and I got out.

uptrend channel msft2

How to Trade Channel Patterns
The strategy of trading channel patterns is to identify valid trends and trade in the direction of the trend. Sometimes, neither a bullish nor a bearish trend is present, but the stock is moving between parallel resistance and support levels. When the stock moves up and then pulls back, the highest price it reached before its pull back is the resistance. As the market continues up again, the lowest price the stock reached before it climbed up is the support. There are swing trading opportunities in these scenarios, with the trader going long near the support area and shorting near the resistance area.

When the price touches the support trend line, or the lower trend line, of an ascending channel, a buy trade is signaled. When the price touches the resistance trend line, or the upper trend line, a short trade is signaled. It is also important to pay attention to the volume of the stock. If the stock breaks support with high volume, it is a greater indication that the trend is broken. However, if the stock breaks support with low volume, it is okay to hold a little longer since it could be a false breakout. If you choose to hold a little longer, make sure you have a stop loss.

Trending stocks usually move in a step-like pattern, where it may go up for several days, pull back, and then go up again. If this pattern appears consistently on a chart, the stock is said to be in an uptrend. A pullback can last a few days or even a few weeks. As a bullish swing trader, you should look out for these type of stocks but you should wait until the stock has resumed its original uptrend. This means you shouldn’t buy when the stock pulls back because the stock can continue to go down further. You should buy as the stock is going back up again.

Find the lowest point of the pullback so that you can set a stop loss below it. If the stock goes below this point, you should exit the trade. This will help you limit any losses. Also, find the highest point of the recent uptrend so that you can set it as your profit target. If the stock hits this point or higher, you should consider exiting a portion of your position. This way you can lock in some gains.

Breakout Trading Strategy

Besides entering a trade in a channel pattern, you can also enter a trade when a breakout occurs from the channel. A breakout is when the price closes above or below the boundaries of the pattern.

The below chart of Amazon stock shows a breakout from the uptrend. The increase in volume also signifies that the uptrend is broken and a downtrend might be imminent. Swing traders may see this as an opportunity to short this stock.

breakout amazon

A breakout doesn’t necessarily have to occur from an uptrend or downtrend pattern. For example, if a stock goes up and down in the $10-$15 range for a long time and then it breaks out from this range on high volume, it also signifies a breakout. Breakouts are also opportunities that I watch out for. However, you need to be careful of false breakouts. If the volume is weak, the price breakout might only be temporary and can pull back into that range.

Gap Trading Strategies

Gap trading occurs when a stock gaps up or down from the previous day close. They form because buy and sell orders are placed before the market opens and drive the price higher or lower than the previous day’s closing price. If there is an increase in volume on the day the stock gaps up or down, it is a strong indication that the price will continue to move in the same direction of the gap.

The most common gap patterns are Common, Breakaway, Continuation and Exhaustion. The trading strategy may be based on the type of gap. Take a look at Apple chart below. There was a gap up on high volume in the beginning of February. To trade this gap, I would take a look at the intraday chart and set a buy order if the price surpasses its highest point in the first hour of trading. This is because morning reversal gaps can occur within the first hour of trading.

appl

A stock that gaps up above resistance level or a stock that gaps down below support level are reliable entry signals. You can use these gap trading strategies for intraday, end-of-day, or weekly gaps.

Japanese Candlestick Charting

The Japanese candlestick is a popular charting technique used for short-term outlooks. Candlestick charts displays the opening, close, high, and low prices for a security each day. Once traders learn how to read candlestick charts, they find them easier to look at and more useful than traditional bar charts since it reveals more about a stock’s price action. The shape and color of candlesticks help traders gauge the emotions around a stock by showing us if there is more buying (greed) than selling (fear). There are many candlestick patterns and it is important to understand what is happening in each pattern. Japanese candlesticks are a way of looking at prices and should be used with other technical indicators for them to be useful.

Bullish candlestick patterns – The below are examples of candlestick reversal patterns signaling a chance of a rally. For any of these patterns to signal a rally means that there must have been a preceding downtrend.

candlestick bullish patterns1

Bearish candlestick patterns – The below are examples of candlestick reversal patterns signaling a pullback. For any of these patterns to signal a sell means that there must have been a preceding uptrend.

candlestick bearish patterns1

Read to learn more about candlestick trading and swing trading books.

These are a few of the popular swing trading strategies. It is important to use multiple indicators and not trade on any one technical concept in isolation. There is a higher chance for a profitable trade if many technical tools are signaling the same message. Regardless of the strategy and the technical indicators you use, you should always enter a trade with a clear trading plan. This means you should have a target price and a stop loss. Through analysis and experience, you can determine which swing trading strategies work best for you.

Swing Trading related articles

How to Read Stock Charts
How to Read Candlestick Charts
How to Trade the MACD Indicator
What is Technical Analysis
How to Trade Fibonacci Retracements
Fibonacci Trading Strategy
How To Trade Stocks Using Technical Analysis
Top 10 Technical Analysis Books