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Swing & Momentum
Investors
and traders use various methods to identify stocks that are
likely to move higher.�
Do you buy low or buy high?��
Well the traditional logic would say you buy low and
sell high, but others would say you should buy a stock when
it is high and sell it when it is even higher.�
At first glance we might laugh at such a plan, but
there IS a place in a traders toolbox for such thinking.�
These two different stock trading styles are �Swing
Trading� and �Momentum Trading�.�
Let�s take look at what these trading methods entail
and what we can learn from each discipline.�
If you look for a stock that has a depressed share
price with a reasonable belief that in the near-term it can
be sold for a higher price, then you are likely a swing trader.�
If you look for a stock that has been recently moving
higher and looks to
continue in an upward direction, then you are likely
a momentum trader.�
The swing trader looks for the stock that oscillates
up and down within a trading range or price channel and tries
to buy it at the bottom of its range and sell it near the
top of its range.�
Now what are the advantages and disadvantages of the
two trading styles?�
The swing trader tries to buy a stock when its low
but many would say that a stock is low priced for good reason
and is fairly valued at those levels.�
But we all know that stocks aren�t fairly priced every
day and they are frequently over and under priced due to many
factors.�
The trap is some stocks ARE deservingly trading
at a value lower than it has recently traded.�
The swing trader needs to observe the price action
of the stock and identify when the stock is no longer moving
down and is beginning to move higher.�
Not an easy feat, yet doable with good price charting
and technical analysis software.�
Some stocks do follow the laws of physics related to
momentum and seem to just steadily crawl higher.�
The quicksand in momentum trading is a stock that has
run up over a long period frequently can become overpriced
and when it does move lower it can do so with the characteristics
of a rock dropped from 30,000 feet.�
Identifying the end of the run of a stock with a lot
of momentum again is easier to identify with good charting
software.�
The saving grace for both swing and momentum traders
is the stop order.�
Placed just below the price you purchase the security
at and moved up if your buy premise was correct can allow
for significant gains and preserve profits.
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