When it comes to swing trades, the answer depends on what you have on each side of the deal.
In other words, which side can you make money off of? What’s your investment thesis for how long it may take? How much capital might you have to cover risk in a swing trade?
The answer, in short, will depend on your goals for the trade and your market environment.
In the above examples, we’ve analyzed the swing trades from several sellers to see if you can make money from them.
If this sounds like a lot of work, or if you do not have a specific strategy in mind, feel encouraged to go ahead and take all the swing trades! Just to get your hands dirty – the more swing trades, the more valuable your trading experience on trading will be!
Step 2: Determine the value of your risk – and how much capital you have
You need to determine the value of your risk – the amount of capital you have in the market.
If a trader’s swing trade is profitable, he can simply put that value into risk.
If the risk is too low, or it looks too high, he should find his investment thesis for how long it may take.
Here are some examples of swing traders’ risk assessments:
Seller A is selling 60 shares of a stock and is looking to sell 70 shares of the same stock on Day 0.
Seller A has 80 shares in a stock with a low price of $6 that has a 20% upside potential, and the stock has a price that is $14.
Seller A has $10 in reserve which she will use to cover the risk of losing money
Seller A’s first stop is $6.
The swing trader would first check the value of her $10 in reserves. The swing trader assumes 50% upside over the market’s value, and is willing to take any risk necessary.
To make this analysis, you need to calculate the value of your risk, and calculate the value of your capital.
Step 3: Determine if the stock is actually overvalued
If your stock is overvalued, you must subtract $10 from your stop loss. If this is the case, you should sell the entire position.
You need to determine if the stock still looks cheap. If we do not think the stock is overvalued, the swing trader should stop short only to cover what
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