I started experimenting with swing trading recently to find an edge in the market which I can add to the few edges I'm developing in day trading. Although some day trades I've made have bled over into the next day, the strategies (indicators, position size, entries, exits) I have been using for day trading are not all that I intend to use for swing trading, and some don't apply. Swing trading is fundamentally different. For one, I think that swing trading takes into account a company's fundamentals more than day trading does. Swing trading also is tied to sector and overall market movements, the business cycle (earnings reports, etc), and an approach to one's account which would have room for tying up one's funds for a week to several months or longer.
Just as in day trading, however, swing trading should be accompanied by rules which one develops to tip the scales towards profits. And as primarily a day trader, I'm finding it challenging to adjust my rules for that arena to the swing arena. Because for these first trades I've placed myself in, I keep wondering if I've actually made a mistake (or multiple mistakes) and am trying to call them swing trades to smooth things over with myself.
Let's look at an example of a swing I'm currently in, going over my thought process from entry to now.
On my smallest account, the one I've designated for swing trading and which started with $500, I went big on 3/27 and bought 500 shares of $AKER at 0.9109. I had set my limit for 0.903 using my broker's dynamic router but appeared to be filled at 0.9109. Let's pause to look at both points.
+ Large Risk
First, I think many would say that risking most of my account on one trade is a mistake. In general, I agree with that approach, that one should only put a small portion of one's account at risk on any one trade (maybe 1/4th or so) in order to protect one's capital for future trades. However, for small accounts, I'm more liberal. I'm ok with entering a trade with the majority of my small account if I've done some research which indicates to me a healthy return. I do have a mental stop in mind when I do this (and an actual stop loss if I'm not as certain of profit). But I don't see a small account growing much, given trading commissions, if one doesn't risk more at the beginning. This is also why I recommend trading with a paper account for a month or so first.
The other reason is that for this small account, I was already prepared to deposit another $500 into it. I decided to take the trade and not deposit the money (but keep it ready if absolutely needed) because my little bit of research before the trade gave me the impression that I may be able to double the account in the trade itself. That's the best scenario as I'd like to grow this very small account solely by trading to see how far I can take it.
+ Bad Fill
For the fill, the fact that I had intended to get in at 0.903 but instead was filled at 0.9109, that does hurt my profit percentage. Some may even look at that as a inauspicious omen, that I lost the trade right out of the gate. The difference there is about the commission cost of one trade. For a small account which needs to see profit above the commission cost to grow, that changes the percentage of movement needed before exiting. However, this may have not been a bad fill but rather the way my broker displays the data. Sure enough, when I look at my actual transactions, I see it was 500 at 0.903. But my P/L shows I am in at 0.9109. This is because in another location I had set the P/L to reflect the amount displayed after commissions. This is a lesson for learning everything one can about one's trading platform. Little things like that can throw off a trade, affecting your psychology. And for swings, I'm noticing psychology pops up even more as one waits, impatiently, for that move one is looking for to happen. Even if this was an actual bad fill, I would still stay in the trade given my analysis.
+ Reasons for Entry
Here is the 15 minute chart for the day before I entered (3/26) and the day I placed my trade (3/27).
What I was looking for, when I was looking to use this account for a swing trade, was for a stock which is under a dollar/share, seemed ready for a breakout based on the daily chart, and which tended to spike on earnings and is close to an earnings release. My idea was that I could take advantage of that breakout if the earnings release didn't pan out. So for this one, I suppose you could say I was straddling the day/swing fence. If this stock had a strong green day on the earnings, I was thinking of selling that day. But if earnings didn't bring the stock up, I'd wait for the breakout on another day.
Here's the daily chart from 5/11/17 - 3/26/18:
As you can see, $AKER has had green days on the last few earnings release days. Note that the next day on those is red. So this isn't an earnings runner, but it does seem possible to take advantage of green days on earnings releases. Also, right about where my profit line appears is a level that the stock seems to be rising up to, possibly ready to break above that line into better territory. The 52 week high for $AKER is 2.10. So I was entering just below a dollar a share with the thought I had a high probability of selling between $1-2. I have a conditional sell order at $1.25 with a trailing stop of 0.10. So if the stock goes my way and my condition matches, I would gain a minimum of $119.55. If the stock really took off to the next level above the 52 week high (that is about $3.55) I could potentially make $1,319.55. For an account that's about $500 at the entry, either profit is great in my opinion.
Further, going back to the 15 minute chart, 3/26 looked like a good move. I took that as a signal that this was ready to pop above that daily profit line. It gapped up 0.10 and held that day. Pre-market on 3/27 looked like it was trending higher at the beginning. So my entry was in anticipation of the blast-off. Which, as you can see, didn't ultimately happen.
Now, so far I have only been discussing technicals. I hadn't looked at the fundamentals of this company at all when I entered the trade on 3/27. When I day trade, I'm just looking at technicals as I don't care much about the company, only what profit I can get in an hour or a few minutes. But for swing trading, fundamentals matter. And fundamentals are more than when earnings are released. I approached this swing trade as a day trade. And, sure enough, over the next several days $AKER dropped 0.40.
+ Reasons for Exit
A drop of 0.40 is a lot for this trade. The earnings release was delayed, it wasn't the best of news, and the stock dropped 0.30 that day in response and a further 0.10 the following day. My primary reason for entering didn't pan out. So why didn't I get out on 4/3? What happened to my mental stop? As a matter of fact, what was my mental stop? Guess what, I didn't have one on this trade because I was already willing to replenish my account with more cash. This is definitely a glaring mistake. All of the other points are debatable, probably, but not having a reasonable plan to exit is the obvious lesson here. As of market close on 4/6, I'm sitting on a -$150.46 on this trade. That's -33.03%. Given best practices, I should have sold when my loss was -25%. Now guess where I'm at? In that unenviable "stuck" position. Too wounded and too prideful to accept defeat.
Because... there is one more bit of upcoming news which may just save this old ninja on this operation after all. $AKER is in the Health Care sector in the sub-industry of Health Care Equipment. That sub-industry has done well in the past 6 months. Further, they are anticipating an FDA announcement which may bump up the stock. And, let's not forget the daily chart. Even with the 0.40 drop after earnings, the stock has risen 0.10 over the last two days and held, all in anticipation of the FDA announcement, I believe. Looking at that drop compared to the daily, if it starts to go up again, then it is still poised for that breakout above my profit line. Additionally, Reuters Research Average Rating for this stock is Buy. My broker shows 5 bullish and 0 bearish signals in the intermediate term (6 weeks - 9 months). So the signals, and I think the fundamentals, still show that this stock is a keeper at least for a little bit longer.
Swing trades are challenging for a day trader. My patience is being tested here. I had originally planned on swinging $AKER for at most a few weeks before selling. Now it may be that I'm in it for a few months before seeing profit or before cutting my losses. While this money is tied up in the swing, it is not free to be used elsewhere. And elsewhere is where I'm more comfortable.
I'm willing to wait on $AKER as I learn more about the company and as I refresh myself on the principles of swing trading and as I formulate my actual stop loss this weekend (which I aim to set on Monday). Given that this is my smallest account (I have three others) I'm ok with the risk involved in this experiment.
The question for the other ninjas, though, is what would you do? What part of this scenario is mistake and what part is strategy? How patient would you be? What sources of information would you use to make your decisions? (And quick tip, StockTwits is not a viable source here. Read through $AKER there and you'll see why I view the heavy activity to be mainly just entertainment.) Take what I've posted here and come up with your own plan.
Updates to follow.