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Trading Methods?



When attempting to identify opportunities for swing trading, traders generally consider two types of analysis methods, technical analysis and fundamental analysis.

Technical analysis involves the use of price charts and technical indicators to identify entry and exit points of a stock. There are many methods used to speculate in the stock market from a swing trading perspective, however almost all methods can be categorized into two main types; channeling or breakouts. Channeling involves trading methods that attempt to anticipate when a stock will meet support or resistance and turn in the opposite direction. Channeling uses several types of charts analyzing different data in different ways to determine this. The charts are technical but give a graphic look at the behavior of stocks and many software programs are available to the trader to analyze the information and feed it to a computer quickly. Conversely breakouts attempt to enter a market when the stock reaches a new high (for long trades) or new low (for short trades) for a chosen period of time. Breakout systems use information such as the average return over a given holding period after a breakout and the percentage of time the market moves in the direction of the breakout over a given holding period in an attempt to predict high yield.

Fundamental analysis involves analyzing the underlying fundamentals of a stock such as PE ratio, earnings, revenue, management, competition etc. to determine if and/or when it should be bought or sold. If a company has bad fundamentals, obviously it should not be bought in the first place. But most of the time fundamental analysis in swing trading deals with the change in fundamentals of companies that have (or had) good fundamentals or the trader would not have had interest in the stock to begin with. A change in management, for example, could prompt a trader in the direction of selling or buying depending on the perceived ability of the new leader or leadership team. Some traders utilize both analysis methods in an attempt to improve their trading results and predict swings with a higher level of accuracy.



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