Swing trading is like a dance. You must screen your partner carefully, ensuring that she and/or he has the chops to take you to the next level. Once you thoroughly vet out a partner, you must ease in slowly. Feel the rhythm and use it as your guide. Finally, the most important aspect of all is the curtain call — you need to know the best time to take your bow and walk off the stage.
The most misconstrued aspect of swing trading is time limits. For some reason many traders and pundits have begun to treat it as Day Trading +1, where you are essentially still using minute charts to time an exit a day after you take a position. This is a quick way to lose money… your taking on overnight risk in something you intend to dump the next day. Most of the time, the best exit for a short term trade will of already passed if you are focusing on such short intervals.
The better way to swing trade is to think of it as an intermediate position with no perfectly defined time frame. It could be 3 days or it could be 3 weeks, but that is irrelevant. Time constraints create noise, and noise creates losses. Your real focus needs to be on (1) your predefined risk/reward ratio and (2) the rhythm of the market. You let price action dictate your exit, within the confines of your system.
For example, after finding a stock in a burgeoning uptrend (I prefer momentum trading) I then use a 10 day and 20 day moving average in conjunction with price action to gauge my swing. Take a look at the chart below (I excluded the ticker because its irrelevant, the chart should be your guide with trading):
The 10 SMA (blue line) crosses the 20 SMA (orange line) at the bottom, creating a very clear entry signal. At that point I began a starter position (25% to 50% of my intended lot). Now that is aggressive, and on more volatile tickers I would wait until the price crossed the 10 SMA (blue line) a few ticks later. Once I enter, time is irrelevant. I am a surfer riding a swell and, through experience, know the specific action to be on alert for to exit.
The two red X’s are two possible spots where I would begin to plan an exit. The first shows price crossing the 10 SMA, this puts me on alert of a potential pullback. This is further confirmed by the slope of the 10 SMA facing downward a few ticks later. Now, if this is a riskier position, I could of dumped 25% to 50% right there to protect profits. The clear point to begin exit occurs later on when the 10 SMA crosses the 20 SMA. At this point I would be all out on a shorter swing, as my profit goals were met. If its a longer play, then I would be partially scaled out BUT would wait to see if that support area holds. If the trend continues I may consider re-entry.
Hopefully I did not get too technical in my explanation here. The point of this is to show rhythm. Markets ebb and flow, and its important to not get spooked by normal movement. You must stick to your system to make & take profit. If you are overly cautious you may prevent losses and gains. If you are careless, you just lose. But all-in-all, the most important factors are always your profit goals and the underlying price action. So learn the rhythm and learn to win.