Swing Trading with Spread Betting

[seguna]

Hello All

I'd like to start a discussion to help formulate a complete methodology for Swing Trading the major indices using spreadbetting. I'd like to begin by asking the following questions

a) Definition of Swing trading, as opposed to Day or Position trading. I would mainly define it as trades held from one day to about two weeks maximum.
b) What is the complete set of variables one needs to know accurately about an index or stock (or FX - any market really) before begining to trade it? e.g. ATR, NTR, Max Risk Per Trade, Volatility etc
c) The pros and cons of a strategy that does not require screen watching.
d) How to implement controlled risk trades in SB, using stops, trailing stops and limit orders.
e) How to test strategies and trading systems to find out if
1) They will deliver your risk/reward/trade frequency objectives
2) They will suit your temperament and time available to trade

The end goal is to build a complete picture of what is required to implement the swing trading strategy successfully. This is not primarily an exercise to build a system for generating buy and sell signals. However, I accept, that assumptions will have to be made in regards to specific trading strategy/system in order to answer some of the questions above.

rgds
S

 

[Trader_Dave]

Seguna... this looked like the start to something that could be good.. are you still completing it?

Trader_Dave

 

[seguna]

Seguna... this looked like the start to something that could be good.. are you still completing it?

Trader_Dave

Unfortunately not as no one seemed interested in developing it. You are the first poster since I started it in April!

Rgds
S

 

[barjon]

Unfortunately not as no one seemed interested in developing it. You are the first poster since I started it in April!

Rgds
S

seguna

Missed it first time round - seems a useful discussion if it can be broken down into bite sized chunks, also bearing in mind that a lot of it will stray into basic TA.

By definition, swing trading is about taking advantage of the shorter term oscillations in the market (peaks and troughs) and that raises a number of basic questions:

1. How are you going to identify your peaks and troughs and in what timescale

2. How and when are you going to enter.

3. Are you going to trade both ways or just with the trend.

4. If the latter, what trend (short, intermediate or long) and how are you going to identify it.

5. How and when are you going to exit.

6. What SB vehicle are you going to use (daily cash, rolling cash, futures)

Obvious questions, I know, but a precursor to all that follows.

jon

 

[seguna]

Jon

Excellent contribution Barjon

I'd like to see a definition that defines Swing trading and distinguishes it from day and longer term trading.

Regards
S

 

[barjon]

seguna

I don't think you can give such a definition. If you agree with the basic definition that swing trading is seeking to take advantage from the oscillations in the market (downswings and upswings), then the timescale involved is almost immaterial.

An intraday trader seeking to play the oscillations from a 5 min chart and who is thinking in minutes and hours is just as much a swing trader as someone who is working from a weekly chart and thinking in weeks if not months. I use daily bars - sometimes, not often, I'm out the same day (not including stoplosses!!) and sometimes the trade runs for weeks.

jon

 

[Newtron Bomb]

Definition of swing trading :?:

Definition of swing trading :?:

This is a tough one as there are so many people using it interchangeably and overlapping with other interpretations of different things. (my view)

However, recently I have come to consider my own trading quite in depth. Swing trading for me is taking advantage of market "swings" both long and short in the market.
I do this on a variety of time frames from 1 and 5 minute, 15 and 60 minute, and 4 hour and daily + charts for FX trades. Long terms daily and monthly for dow and dax trades and 5 and 15 minutes for nasdaq stocks.
Some people may consider 5 and 1 minute scalping but I think we are still trying to acheive the same outcome of "capturing market swings" but using different time frames.

On particular way I trade longer term strategies is pretty much without the use of charts other than to establish a direction, ie with trend or a reversal pattern.
When this is chosen I will look to trade the round numbers and go long on a break above and a stop below, compounding in at ever round number. I usually have a profit target in mind and will look to take profits when it gets there.

This type of trading can be done with smaller time frames and looking at round numbers and half centuries to trade around and you can also expand this by trading around bigger numbers in the case of the dow 10,000 10,250 10,500 etc. In the case of FX cable may use 1.75 1.80 1.85 for longer term trades, the same can be done for nasdaq stocks... am sure you get the idea.

By using the round numbers, I can easily identify an entry and a stop, manage my risk and identify key psychological support and resistance areas.
This is a strategy that can easily be back-tested, by doing so you will easily see what the market "swings" before it might turn. FX cable might make between 3-5 cent moves before taking a breather. The dow recently has been in about a 400 point rough swings.

I hope this has sparked some ideas for you.

Happy Trading
NB

 

[jklondon]

have been using SB for some basic swing trading - normally if something swings its because its moving too / from its long run average (right?!). Anyway had some success with a few FTSE250 stocks trading within narrow ranges..

 

[Buk]

This type of trading can be done with smaller time frames and looking at round numbers and half centuries to trade around and you can also expand this by trading around bigger numbers.

can certainly confirm that, specially on the cable. Just take a look & observe the 240 + min charts. Time & time again price reacts off the 00/half century clips, allowing you to scale out/add in on swingers. Pretty good for not only trading pullbacks against the trend, but also adding in on continuations. You'll often find these levels also match up with pattern formations (1-2-3's/2b's), seen more clearly by scrolling into the 15/5 min charts

 

[seguna]

Swing Trading

All

Thanks for your various contributions. This is what's so great about T2Win.

So then, are we saying Swing Trading is more a trading style or attitude than it is a method tied to a time frame?

Rgds
S

 

[SvenFoster]

I would say that if anything, it is completely time-frame independent. "Swing trading" to me means taking advantage market behaviour such as cycles and S/R, TA pattern etc with a specific target(s) and controlled risk.
The beauty of swing is that these setups exist in all time-frames at all times so your able to move from one to the other. Awareness of time-frames other than the one you are trading is IMHO essential.
It can an is always difficult(at least for me)

 

[Tubbs]

Problem with swing trading is that you feel you must always be in the swing - i.e. long or short all the time. Probably the best risk tactic is to be out of the market a lot of the time as there are times when the market is doing nothing. The best techniques I reckon are to jump into a trade that is more certain than most & take this trade less frequently. The risk must surely be lower. I know it's hard to define that moment though.

Swing trading also incurs lots of commission due to the various reverses of direction - you have to monitor to make sure that volatility is high enough to enable a decent return for you trade. It's certainly why I looked to make my trades a little less frequent.

 

[gcb01]

Risk management and profit-taking

I would say that if anything, it is completely time-frame independent. "Swing trading" to me means taking advantage market behaviour such as cycles and S/R, TA pattern etc with a specific target(s) and controlled risk.
The beauty of swing is that these setups exist in all time-frames at all times so your able to move from one to the other. Awareness of time-frames other than the one you are trading is IMHO essential.
It can an is always difficult(at least for me)

I've been swing trading US stocks using SB. I always exit before close as some US stocks are highly volatile on opening and it is easy to get spiked out with a serious stop overshoot.

I find two things difficult:

1 Managing the open bets. If they are predominately/exclusively in one direction then a general market movement the wrong way is very dangerous as overall profits can evaporate very quickly and turn into rapidly increasing lossess if you wait for the market to turn or are away from the screen. My stops are set fairly wide to avoid good bets being stopped out but I'm considering revising my stop stratagy so that if my bets are predominately/exclusively on one direction then I'll either make the stops a lot closer or place a larger index bet in the opposite direction as a hedge. Proidd I can develop a sufficiently mature TP then I'll only use this to cover when I'm away from the screen.

The rational is that the odd bet going way off to a deep stop is one thing but a whole bunch doing so is quite another.


2. When to take profits If a bet is sufficiently into profit (say £50) I'll move the stop much closer to protect 50% of the profit. Also if a bet is in profit but has been stationary for more than an hour, I'll close out.

Any suggestions for improvement?



Campbell

 

[SvenFoster]

I'm still learning but I'm sick of being a lurker so here goes.

I've been swing trading US stocks using SB. I always exit before close as some US stocks are highly volatile on opening and it is easy to get spiked out with a serious stop overshoot.

I find two things difficult:

1 Managing the open bets. If they are predominately/exclusively in one direction then a general market movement the wrong way is very dangerous as overall profits can evaporate very quickly and turn into rapidly increasing lossess if you wait for the market to turn or are away from the screen. My stops are set fairly wide to avoid good bets being stopped out but I'm considering revising my stop stratagy so that if my bets are predominately/exclusively on one direction then I'll either make the stops a lot closer or place a larger index bet in the opposite direction as a hedge. Proidd I can develop a sufficiently mature TP then I'll only use this to cover when I'm away from the screen.

The rational is that the odd bet going way off to a deep stop is one thing but a whole bunch doing so is quite another.

This could be helped with asset allocation. Ensuring your not heavy on longs /shorts etc isn't always optimal and there are various risk to tweek, Market risk, sector, company, trade. If your really into it take a look at. http://www.riskgrades.com/ (not my company

Base stops on relative lows, highs, S/R etc and take volatility in to account either by eye or Average True Range (ATR) etc..

Remember a stop loss is there to tell you when a trade has gone wrong, or was not a contender in the first place.

2. When to take profits If a bet is sufficiently into profit (say £50) I'll move the stop much closer to protect 50% of the profit. Also if a bet is in profit but has been stationary for more than an hour, I'll close out.

Any suggestions for improvement?

Campbell

The inactivity stop your using is a good idea but depending on your style you could try, scaling in/out of your positions.
Say it hits your 1st target, then either close out 1/2 and trail the rest with a stop.
or if your in trendfollowing mode then scale in another smaller position on pullback of say 1/2 the original and this will move your average price up but by around 1/3 of the way.


I think stops are the toughest things to manage but a crucial part of the game,
hope it helps
Sven

 

[barjon]

Problem with swing trading is that you feel you must always be in the swing - i.e. long or short all the time. Probably the best risk tactic is to be out of the market a lot of the time as there are times when the market is doing nothing. The best techniques I reckon are to jump into a trade that is more certain than most & take this trade less frequently. The risk must surely be lower. I know it's hard to define that moment though.

Swing trading also incurs lots of commission due to the various reverses of direction - you have to monitor to make sure that volatility is high enough to enable a decent return for you trade. It's certainly why I looked to make my trades a little less frequent.

tubbs

mmm, it's quite dangerous going both ways. I try to go with the prevailing trend (both instrument and market) and if I do go against it then I'll only go for half a position.

 

[Tubbs]

It definitley the way to go barjon - can be difficult to pick up the prevailing trend though!