Swing Trading rules:
A breakout is the point at which the current stock price moves out of a trading range or pattern. The trend usually continues in the direction of the breakout but to avoid a whipsaw, a trader should look for at least a 1/8th to 1/4 move outside of the previous trading range or pattern before they consider the breakout to be a valid indication of a continuation of the trend for future prices in the direction of the breakout and should also consider the previous support/resistance as the new support resistance when deciding on stop losses.
In order for a Breakout to occur, it must trade THRU Resistance, NOT AT IT. The same applies to a Breakdown. It must trade THRU Support.
Do not play any Breakouts that trade THRU Resistance/Support in the first 15 minutes after the open. They usually pull back.
Breakouts/Breakdowns should be confirmed by volume. High volume expansions often signify an important change in a chart. Though Breakouts that go on lighter volume will often work out, the odds of success are much greater when there is an increase in volume.
In almost every case, the intensity or extent of a price movement will be greater in the direction of the primary trend of the market. Therefore, it is imperative to trade "with" the trend, not "against" it.
Money management is an essential element to any trading system. Not adhering to strict money management principals is the most common cause of failure among traders.
Always use Stops. Normal placement for a stop is at 2, 3 or 5% from entry depending on your risk tolerance and should relate to a break in the near term resistance or support. If you go Long XYZ at $100.00 per share, You should consider placing your initial Stop at $98.00 for a 2% stop. If the price increases, you should trail the increase with a Stop to lock in profits should the position turn against you.
You can Consider a money management technique called "scaling." Which refers to scaling out of trades and attempting to put yourself in a win/win situation. If you go Long 500 shares of XYZ at $100.00 per share. Your initial Stop is set at $98.00. If the price increases to $102.00 you could sell 250 shares and then reset your Stop from $98.00 to $100.00, thus ensuring that you have a winning trade. If the price continues to go up to $104.00 you can sell another 150 shares and move your Stop from $100.00 to $102.00 for the 100 share balance. If it pulls back from there and your Stop triggers, you can still be happy. If it keeps increasing, you can be even happier because you've still got a few shares working for you.
NOTE:
NEVER use the "scaling" technique to scale INTO a LOSING trade that's going against you!
