By: Meir Barak
The trader buys stocks which are rising. The trader’s objective is to hold them for 2 – 5 trading days under the Swing method.
Occasionally, the trader may hold a stock for longer than 10 trading days. This is not day trading, but the rules of entry into a stock “Top down analysis” (intended to maximize the chance of success) are similar. A few words about the swing method. Let me clarify: this is not my invention. I have learned it in the USA from a veteran trader named Chris Mercer who lives in Phoenix, Arizona. Chris most likely learned it from his predecessors.
I did not stumble upon by chance, but rather after some negative experience with other methods. According to this method, a trader only enters into stocks with an appropriate technical pattern and only if they meet strict intra-day criteria.
I will not teach you this method in this article. Learning this method requires far more than a newspaper article. But for those of you who follow technical analysis articles, this article may serve as basis for better understanding of the rules for entry, exit and management.
+ Why trade using rules?
Sticking to trading rules avoids individual initiative. Individual initiative is a great attribute, but may be ruinous for stock trading. Do you know how often I hear phrases such as: “I am buying Microsoft because it seems fine to me!”
Usually, individual initiative is doomed to fail. Individual initiative is usually impulsive, and is usually opposed to the true market direction. That is how the market works. The market’s role is to take money from mediocre players, and what better way than act in the exact opposite direction to the “feelings” of the public at large? Therefore, sticking to rules is difficult by nature, since it is usually opposed to the direction “sensed” by the novice trader.
+ Who sets the rules?
In actual fact, each and every one of you can set your own rules. The question is this: Will the rules you set stand the test of success?
Do you have the knowledge and experience to set appropriate rules? The set of trading rules is personal for each trader. Each one of us operates differently, prefers different game types and acts in a variable market which frequently changes the rules.
There is no single set of rules to act by. If such a single set had existed – you could not make any money. You can try and guide the novice trader by providing the basic rules, but you can definitely not give him the gift of the professional trader’s magic touch. The road to success is through study, experience, failure and finally – a tiresome process of slow improvement.
For some players, the road ends in failure. For those of us who manage to survive, rules are formed which guide us to recurring success. You may use the rules in this article merely as building blocks. You, and you alone, can put together your own basic rules.
The rules are not final. They change based on the nature of the trading session and the experience gained by the trader under different circumstances. In some articles I have to declare the stock a loser, although in actual fact it is obvious to me that any experienced trader would get a small profit out of it, or at least would exit without a loss. Finally, let me remind you that the objective of my articles is merely educational, and they should not be construed, under any circumstances whatsoever, as recommendations to buy or invest in stocks. Usually I myself own the stocks recommended in my articles.