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The Rob Tetrault Show - BA, JD, MBA, CIM


Dec 24, 2019

What is Swing Trading?

You're most likely looking at the markets every single day. You're studying the charts closely and trying to benefit from the fact that there's volatility in the markets. You might have a discount brokerage account and you trade the same stock more than one time per day, week or month. This is referred to as day trading or swing trading. These are two commonly referred terms.

The end goal of swing trading is to sell a stock at a higher price than you bought it. Swing traders aim to do this repetitively in a day, week or sometimes in a month, depending on how frequent the investor is trading.

Usually, the traders will set price targets for their buys and their sells. The successful investors who trade have very strict guidelines and protect themselves from bad losses in the event they are wrong on the trade they executed.

I would caution every one of you who's reading this, that swing trading or day trading is NOT for everyone. In fact, it's for very few people.

You need to have some incredibly remarkable resiliency, intestinal fortitude and a really high-risk tolerance. The market historically is up more often than it's down, right?

What ends up happening with most people is they invest in something and on most days, their investment is in the green and growing, since the market is up more often than not.

The stocks generally move in a positive direction (if you follow the history of the stock market). It's not overly difficult to make the profit on the first few times you're trading a stock. If stocks keep moving up, you keep making money.

What happens often is the investor starts feeling confident about his swing trading skills. He or she gets a couple “wins” under their belt and now believe they can time the market with predictability. I’ve seen it countless times, the investor gets caught on the wrong side of the trade and his returns in his portfolio are getting crushed.

Full Blog Article and Video on How To Effectively Time The Stock Market | Timing The Market: (https://robtetrault.com/effectively-time-the-stock-market/)

What if there’s a market correction, a recession or a market event where stocks are down 30, 40, 50%.

Now what do you do?

You're in those positions and the ranges that you were looking at before no longer exist. Typically, a swing trader will have a range of a stock and he'll trade them high and low and try to buy at the bottom, sell at the top many different times on the same day, week or month.

What if your range is no longer in place?

What if your stock is down 40 or 50%? How do you deal with that?

Most investors who have not gone through this market cycle and who are not emotionally ready for the drop, have a hard time bouncing back from that. They end up usually not buying back in and eventually they’re either being long the wrong positions or not being long at all in the stock(s) they sell and then they miss the market timing.

Investing in the stock market, in any investments that have daily liquidity and move with daily volatility is very difficult. Emotionally, it's stressful because what happens is the cycle kind of mimics our emotional cycles.

Full Blog Article and Video on Liquidity Management & Planning: What Is Your Liquidity Ratio? (https://robtetrault.com/liquidity-management-planning-what-is-your-liquidity-ratio/)

It's easy to want to buy when everything's making new highs because that's what we feel. The fear of missing out (FOMO) comes into play. We want to be part of this party. Everyone wants to be part of the party.

However, when the markets are crashing and you're swing trading, are you going to have the fortitude to stay in and be long the right positions? Will you have the courage when you've just lost 30, 40 or 50% of the value in your portfolio?

It's extremely difficult for most people and that's why most investors decide to partner with a portfolio manager and an investment advisor. They are the experts in the investment industry, and they are not emotionally attached to your money.

Therefore, they can make logical decisions based on few things: their experience of investing in the market, multiples of stock prices, dividend growth of stock prices and whatever else that portfolio manager may look at on a day-to-day basis.

You need someone who's going to look at the metrics of your portfolio and figure out what’s best for your goals and needs.

Hypothetically, let’s say you've made a ton of money swing trading and now, you've got some cap gains. Remember, you're going to have some capital gains on every one of those positive positions that you traded.

For tax purposes, the best option for some investors might NOT be to sell those positions. I would caution that if you're going swing trade, make sure you set boundaries and rules for yourself.

Make sure you take yourself through a process of all possible scenarios. For example, what to do in a situation of a downturn. Make sure you understand and appreciate how much of your capital you are willing to risk. What makes sense for some people is to have a hybrid strategy.

They'll have part of their assets for trading, where they want to feel involved in the overall investing process.

Perhaps, the trader will want to set up a TFSA where they can swing trade that account and leave most of the portfolio, or the true kind of wealth to an expert like a Portfolio Manager.

What we don't want to see is most of your wealth ending up in a day trading account. Often, the investors get hammered and end up making the wrong call at the wrong time and they end up losing out on 30, 40, 50% either up or down.

As a result of that, you've dramatically altered your retirement plan and how much capital you can get in retirement. Swing trading is something to be very cautious about. I can’t stress this enough, I'm telling you to proceed with caution if you wish to swing trade.

Very few people have the emotional and intestinal fortitude to swing trade and be successful at it.