There are two major ways to consistently make money in the market:
1) Hunt for several huge winners in a year. Build large positions in them and ride them for monstrous gains.
2) Hunt for hundreds of 5% to 30% short-term winners, where the goal is to compound capital quickly by actively moving in and out of them.
There is not right or wrong approach here. Both have place in the arsenal of each active market participant.
Everything comes at a price. If you want to catch a 200% to 300% long-term winner, you have to be willing to sit through multiple consolidations and several bigger than 30% pullbacks. Not everyone has the stomach to ride big stock market gainers, but maybe you don’t have to.
If you sell all your winners, when they are up 20%, you will never catch a double or a triple. Fact.
What is also true is that in any given year, there are a lot more 20% moves than 100% moves. If you learn how to catch hundreds of quick 5% to 20% moves, your capital could appreciate very quickly while you keep you keep the drawdown in your account to a minimum.
Swing trading is among the fastest way to grow capital if you learn how to properly apply its principles. Swing trading is all about velocity and opportunity cost of capital. The goal is to stay in stocks that are moving quickly in our favor and avoid “dead money” periods.
Stocks move in 5% to 30% momentum bursts that last between 2 and 10 days, before they mean-revert or go into sideways consolidation. The goal of every swing trader is to capture a portion of a short-term momentum burst, while avoiding consolidation periods. Then to repeat the same process hundreds of times in the year by risking between 0.5% and 1% of capital per idea.
The beauty of swing trading is that it provides many signals. You don’t need to risk a lot per signal. You won’t second-guess yourself whether to take a signal or not. One trade is not going to make your year or your month, but it also won’t ruin it. It relies on the magic of compounding. The idea is to grow capital quickly by being leveraged to the hill during favorable periods and being mostly in cash during unfavorable periods.
I know that if you apply the principles I describe in this book, you will become more knowledgeable, more profitable and happier market participant.
Here is a brief overview of what you could expect to learn:
1) What drives short-term market moves? How to recognize perfect swing setups; when to buy them and where to put your stop losses.
2) When to sell and how.
3) How to be more profitable. How to improve your success rate and where to hunt for big short-term gainers.
4) How to manage risk properly. How to decide how many shares you should buy of every stock you like. How to check if you have an edge in the market.
5) How and why to time your market exposure.
This is a really good book on swing trading. Check it out on Amazon.