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Swing Trading:  How To Profit

The Dynamic Wealth Report
January 30, 2009

Time For A New Stategy?
by Corey Williams, Managing Editor

It’s not exactly breaking news.  A buy and hold strategy hasn’t worked for the last decade.  You probably know as much if you’ve opened your retirement account statement lately.  The Dow, S&P 500, and NASDAQ are all flat or down over the last 10 years.
 
It’s time to face facts, the old-time buy a few large-cap blue chips and hold them forever strategy has gone the way of the Dodo bird.
 
So, what’s the answer for this particular market?
 
Personally I swing.  Swing trade that is.
 
I like swing trading for this market because it takes advantage of momentum… or trading in and out of stocks and sectors that are seeing a temporary boost.  There’s no ‘buy and hope’ strategy at play here.
 
Let’s take a look at how swing trading works.
 
In a nutshell swing trading is… buying the lows and selling the highs.  Ok, I know what you’re thinking… how do I consistently buy the lows and sell the highs?  It seems like it is easier said than done.

Although there’s a lot of different ways to approach it, my favorite is looking for technically-based short-term trends.  And taking a position to profit from the trend.

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Here’s something you might not know;  swing traders don’t care why a stock is trending.  If the technical's show there’s a trend, it’s not your job to figure out why.  You just want to profit from it.

But here’s the catch… the stock market isn’t just flat over the last 10 years.  It’s flat over the last few months too.
 
Take a look at this chart of the S&P 500.  Lots of volatility but no real trends.

S&P 500 (SPX)

You may be happy to see a flat market - especially after last year.  But for swing traders like me a flat market is worse.
 
So how do you overcome a flat US market?
 
By not limiting yourself to just the stock market.
 
Here’s why.  You won’t always find a trend in the US stock market.  So I’ll trade foreign markets, bonds, commodities and even currencies.  Until recently, access to these markets was difficult and often required separate trading accounts.

In the past, many individual investors found it hard to trade these markets.  This helped give rise to the notion that a buy and hold strategy is the best way to invest.

Now, there’s an easy way to trade US stocks, foreign stocks, bonds, commodities, and currencies using momentum.  It’s quick, cheap, painless and you can do it all from one trading account.
 
Want to know what it is?

That’s right, ETFs (Exchange Traded Funds).  These are the one investment that can give you exposure to all of these markets.  Today’s ETFs are revolutionizing the ability to trade currencies, commodities, and foreign markets.  You can now really drill down and focus on specific subsectors of all these markets.
 
As I said… follow the trend.  If you can’t find it in the US stock market, you now have easy access to an entire array of markets with ETFs.

I believe that the big money over the next few months and years will be found in the ‘specialty’ ETFs that are popping up.  The value of these ETFs can be derived from commodities like gold, currency pairs, corporate bonds, and any specific subsector you can think of.  The list goes on and on.

And now you can go long or short with two or even three times leverage.  Talk about spicing things up!

And remember as a swing trader you don’t care why the ETF is trending. The patterns and trends you use as a swing trader hold up regardless of the asset being traded.  So you can apply the same technical analysis principles that you use with stocks.

Combining technical analysis, momentum trading, and specialty ETFs isn’t a bad way to trade this market right now.  And it sure beats the heck out of buying a few blue chips and holding on for dear life!


Notable Rating Changes 

• Air Tran Holdings (AAI) was upgraded by Jesup and Lamont to a “Buy”.  The analyst likes the commentary from the earnings announcement.

1-800 FLOWERS (FLWS) was downgraded by Brean Murray.  The analyst fears the company will continue to struggle with reduced consumer spending.

• RBC Capital Markets started research coverage on DaVita, Inc. (DVA) with an “Outperform” rating.


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Issue Date:
 Friday, January 30, 2009


Notable Highs and Lows

•  Sonoko Logistics Parterns L.P. (SXL) hit a new 52-week low of over $55.  Their value is now just over $1.5 billion.

•  Black and Decker Corp (BDK) is trading at a new 52-week low of just over $30.50.  They now have a market cap of just over $1.8 billion.

•  DowChemical (WFC) hit a new 52-week low of just over $12.  The company has a market cap of just over $11 billion.


Quote of the Day

"We don't have a trillion-dollar debt because we haven't taxed enough;  we have a trillion-dollar debt because we spend too much."

                                -Ronald Reagan


 

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Top YTD Gainers

Company Gain
Advanced Med. Optics (EYE) 230%
Anadys Pharma (ANDS) 228%
Seibels Bruce Group (SBBG) 222%
Palm (PALM) 155%
First Uranium (FURAF) 114%
*Year-to-Date, Mkt Cap > $100M

Worst YTD Losers


Company Loss
Webster Financial (WBS)   61%
Helphire Group (HPHRF) 59%
Royal Bank of Scotland (RBS) 57%
Fifth Third Bancorp (FITB) 56%
United Comm. Banks (UCBI) 56%
*Year-to-Date, Mkt Cap > $100M


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