Constant alternation between trend and range evokes natural strategies to profit from each event. But most players just fall into momentum trading and chase expanding price while it rises or falls. Although this frantic discipline can produce dramatic gains, most momentum traders lack defensive risk management and incur unexpected losses. Both low-risk entries and safe exits can be very difficult to locate in this volatile playground.
Price seeks equilibrium. When shock events destabilize a market, countertrend force emerges to reestablish a stable state. This inevitable backward reaction follows each forward impulse. Novice momentum traders fail to consider this action-reaction cycle when they enter new positions. They blindly execute with a common but dangerous strategy: long-side entry on an accelerating price thrust. Reversals appear suddenly in these vertical markets and shake out weak hands. The typical momentum player lacks an effective plan during these sharp countertrends and tries to exit with the herd. Bids dry up quickly and force an execution well outside the intended price.
Swing traders enter positions at support-resistance and seek to exploit direct price thrusts. They use chart patterns to locate and execute short-term market inefficiencies through both trending and rangebound markets. This classic strategy closely relates to position trading tactics that hold positions from 1 to 3 days or 1 to 3 weeks. But swing trading actually represents a time-frame independent methodology. Modern practitioners may never hold a position overnight, but still apply the same strategies as longer-term participants.
Constricted range extremes and sharp trend pullbacks both evoke profitable swing setups. The difference between momentum and swing tactics is simple: momentum buys strength and sells weakness, while swing buys weakness and sells strength. Swing execution is very price-sensitive because major signposts define precise entry-exit levels. Swing traders must exercise sound risk management by taking small losses when positions violate narrow S/R zones.
Markets trend about 15% of the time and remain in constricted ranges for about 85%. If you want to stay in the game, master both momentum and swing skills. Be flexible enough to shift from one strategy to the other when feedback loops alternate between positive and negative. In other words, learn to profit through whatever market conditions come along, and you'll succeed to a greater degree than traders who wait for those limited times when the market environment is favorable for their strategies.
The ability to trade through diverse conditions marks successful careers. Swing trading provides a natural framework to identify changing markets and apply new tactics that will exploit them. This exposes an outdated characteristic of this versatile approach. At its core, swing trading is not the opposite of momentum trading. During those times when strong price movement characterizes a market, disciplined momentum strategy becomes the preferred swing trade. In this way, skilled participants can apply the principles of risk management and price boundaries to the manic world of the speculator. And use momentum's greed to their advantage.
