Just what is a swing trader? Swing traders hold positions over several days and sometimes for a few weeks. The goal of swing trading is to profit from short but powerful moves.

Swing trading differs from the buy-and-hold approach to investing. Long-term investors may hold a security through periods of weakness — lasting weeks, months, or even years — figuring that the tide will eventually turn and their investment thesis will be proven correct. Swing traders don’t care for such poor performance in the near term. If a security’s price is performing poorly, swing traders exit first and ask questions later.

I wish I could tell you that swing trading is fast and easy and leads to overnight profits that will make you an instant millionaire. Perhaps you have seen ads about a quick path to profits by following a “proven” or “secret” system. Or maybe you’ve seen a “news story” of an elementary school teacher that became a millionaire trading stocks during her lunch break. These ads and stories are alluring — people really want to believe them.

But I’m afraid the reality is there are no sure-fire ways to instant riches. Swing trading is no different; it won’t turn you into a millionaire overnight. Period. Anyone who tells you different is either lying, doesn’t know, or has something to sell you. As a beginner in swing trading, you’ll likely lose money for a period until you master the ropes and apply the information in this book and other resources. I remember reading several books before I started trading, convinced I could begin as an expert. But I lost money for a period, rediscovering lessons found in the very books I read. There are few teachers better than the pain of losing money.

As you improve, you can expect to achieve investment performance in-line with the overall market and possibly above it. If you reach an advanced level of swing trading, then you may be able to generate 15 to 20 percent annually over time. If that number doesn’t impress you, it may be because you’re underestimating the powerful force of compound returns: a $10,000 investment growing 20 percent each year will reach more than $383,000 after 20 years — in other words, 38 times your money. One of the most successful investors of all time, Warren Buffett, generated annual returns of about 21 percent over more than 50 years of investing.

About This Book

In Swing Trading For Dummies, Second Edition, I introduce you to the strategies and techniques of the swing trader. Moreover, I cover topics given short shrift in some trading textbooks — topics that largely determine your swing trading success. For example, whereas many textbooks focus on chart patterns and technical indicators, this book goes one step further to cover the importance of money management, journal keeping, and strategy planning. Although these subjects are less glamorous than looking at charts, they’re actually more important — because even exceedingly skilled chart readers will fail if they devise a flawed system, take unnecessary risks, and don’t learn from their mistakes.

Here are some of the subjects this second edition covers:

• Your trading plan: A trading plan must outline when you’re in the market and when you’re not. It must detail your criteria for entering and exiting securities. Your plan should also cover what to do when a trade doesn’t work out, as well as how much you risk and how you handle your profits.
• Popular (and easy) chart patterns to trade: Dozens of chart patterns appear from time to time in securities’ price patterns, but not all of them are sound or based on investor psychology. That’s why I focus on the tried-and-true chart patterns to give you the critical ones to look for.
• Fundamentals: All too often, swing traders pay attention only to the chart and disregard the company behind the chart. You don’t need to spend 20 hours a day analyzing a company’s financial statements — swing traders don’t have that kind of time on their hands. But it’s essential to find out the basics and apply the most important measures in your trading.
• Investment returns: This is one of those unglamorous topics, but if you don’t properly calculate your returns, you’ll never know whether you’re doing any better than the overall market.
• The importance of a journal: A journal is like a trading coach, telling you what you did wrong or right in past trades and helping you to avoid repeating mistakes you made previously. This book shows you the key features of a valuable trading journal.
• Risk: The most important chapter in this new edition is Chapter 10, where I explain how to manage your portfolio’s risk. As remarkable as this may sound, even if you get everything wrong except your risk management, you can still make a profit.
• Important updates: There have been important changes in the investing environment since the first edition of this book was published in 2008. For example, tax laws have changed, new companies have emerged, old ones have died away, new order types are now available (for example, algorithmic trading), and social media has emerged as a potent force in moving financial markets.

Charts and figures used in this book have text next to them explaining the essential point the figure conveys. These captions make it easy to skip to different charts and take away the critical point made in each one.

Foolish Assumptions

I made several assumptions about you when I was writing this book. I’m assuming that you

• Know how to trade securities online
• Plan on trading stocks or exchange traded funds
• Have little or no experience swing trading but are well versed in the basics of trading in general
• Are able to access and use websites that cover research, charting, news, and your portfolio account
• Have the will to change your current trading approach
• Don’t have an MBA, CFA charter, or CMT designation and need some terms and techniques explained clearly

Icons Used in This Book

I use icons throughout the book to highlight certain points. Here’s what each one means:

Often, the Remember icon highlights a nuance that may not be apparent at first glance.

I don’t use the Warning icon often, but when you see it, take heed. I use this icon to point out subject matter that, if ignored, can be hazardous to your financial health.

A Tip icon marks advice on making your life easier as a swing trader. The Tip icon cuts through the fluff and tells you exactly what you need to know. It also may signal some tidbits that are my own personal insights based on experience.

Where to Go from Here

Like all For Dummies books, this book is modular in format. That means you can skip around to different chapters and focus on what’s most relevant to you. Here’s my recommendation on how best to use this book depending on your skill level:

• For a newcomer to swing trading: I strongly encourage you to begin with Part 1 and proceed to Parts 2 and 4. You can skip Part 3 if you plan on exclusively using technical analysis in your swing trading.
• For the swing trader looking to refine his or her skills: Parts 3 and 4 will likely be of most value to you because you probably already have a good bit of technical analysis under your belt. Help in designing your trading plan, which I cover in Part 4, may be the best way to improve your results. Remember, Chapter 10 is the most important chapter in this book.
• For the swing trading expert: You may benefit most by using this book to target specific areas for improvement. The index or table of contents can help you identify which parts of the book to target.

If you’re not sure where to start, flip through the Table of Contents or Index for a topic that piques your interest. For additional information you can access on a regular basis, check out the Cheat Sheet at www.dummies.com.