How We Make Money Swing Trading Stocks

By: Jeremy Biberdorf

August 13, 2019

How We Make Money Swing Trading Stocks

My wife and I make extra money by trading stocks online. We started trading stocks as a side hustle when we needed to make extra money a few years ago. We had some luck early on while the market was making new highs every few months. I think, at the time, everyone was making money by trading. We used our initial trading profits to pay off our student loan debt.

Unfortunately, our luck did not last, and we lost $15,000 trying to trade stocks over the next 6 months. It took three years of trial and error to finally settle on a swing trading strategy that worked consistently for us. Stock trading is an exciting and potentially profitable way to work at home and escape your regular job.

We discovered many helpful training resources as we learned how to trade. We joined chatrooms, stock trading alerts services, and purchased training DVDs to learn how to trade successfully. You can read reviews of these training resources on our stock trading review site, Stockmillionaires.com.

Stock Trading Can Make You Extra Money

Short-term stock trading can be extremely profitable. We regularly make 10%—25% gains on our short-term trades. Last month we made thousands of dollars stock trading. We spent a total of an hour or two earning that money.

If you haven’t tried short-term stock trading, here are a few of the reasons that we love this money-making side hustle:

  • You can start learning to trade with $100. Sure, your profits will only be a few dollars per trade, but it is best to begin slowly while you learn.
  • Stock trading comes with unlimited earning potential. Some short-term traders are making millions of dollars per year trading from their couches.
  • Trading stocks offers you flexible work hours. Trade as much or as little as you want to.
  • Learning to trade stocks is like a rollercoaster—it is exciting, terrifying, and massively fun all at the same time!

I have tried many different ways to make money online. My wife and I have started many freelance businesses from blogging to freelance proofreading online. We have found that stock trading has a steep learning curve to conquer, but it offers the most substantial potential income with the least amount of work. In many freelance businesses, you are directly exchanging your time for money—this is not the case with stock trading.

Short-Term Stock Trading Can Be Risky

Stock trading is a risky endeavor, but you can manage the risk with practice and experience. Stock trading is not gambling—success is not based on luck. There are multiple ways to reduce the risk of losing money trading stocks. Learning to control your emotions during a trade is the first line of defense against losses.

Fear and greed are not your friends! These two emotions are probably responsible for more trading losses than any other factor. Trading stocks is a mental game, and failure to control your fear and greed is the fast track to the poor house in trading.

This article aims to give you an overview of how we make money stock trading online and how you can learn to do the same.

Stock Trading Versus Long Term Investing

We rarely buy and hold a stock for more than a few weeks. Usually, we only own a stock for 1-4 days!

Investors will usually buy a company’s stock when they believe that the value of the company will continue to grow long-term, e.g., over the next few years. Trading is very different from investing. Traders don’t care if the company has the potential to become the next Microsoft or Apple. Traders only care about making money from the price movement over a short time frame, which usually lasts for a few days.

Would you rather hold a stock for two years and make 20% or hold a stock for two days and make 20% profit? We do this every week, often making a 20% profit on a position overnight or over the weekend. This is the difference between a trader and an investor.

There are pros and cons to both investing and trading stocks. Active trading can lead to a lot more profits in a much shorter time. This is mostly due to trading more volatile stocks and compounding gains quickly.

The downside to short-term trading is that the risk is much higher. Short-term trades are usually highly volatile, and this can lead to dramatic losses if you are not careful.

Our Five Golden Trading Rules

A disciplined approach to short-term trading is essential. Here are the five golden rules that we do our best to follow:

  1. Always have a trading plan before you purchase a stock. Stick to the plan!
  2. Have patience with winning trades.
  3. Cut losing trades quickly. You cannot allow losing trades to negate the winning ones.
  4. Never trade with money that you can’t afford to lose.
  5. Never hold a trade through earnings even if you think that the earnings report will be good.

These are the five rules that we try our best to follow.  My experience has been that if I break these rules, I will lose money on a trade.

Learning a stock trading strategy is not easy. There are many different approaches to trading stocks such as trading the news, betting against companies (shorting), day trading, and swing trading momentum stocks. The strategies can become ridiculously technical with all kinds of crazy indicators and chart patterns.

We try to keep it as simple as possible and only trade the highest probability chart setups. Simple is easy if it works—and it has for us.

This article outlines the basics of our simple swing trading strategy. We have used this strategy to consistently make 5%—20% profits per trade (with a 60% winning percentage).

Our Swing Trading Strategy

My wife and I swing trade stocks that cost less than $10 per share. Swing trades typically last between 1 and 4 days.

Investors that are looking for steady, low-risk growth tend to shy away from the penny stock markets. These lower-cost stocks can provide many opportunities for quick profits, though, precisely because they do not have price stability or solid business fundamentals. A blue-chip stock is extremely unlikely to double in value overnight. In contrast, I have lost track of how many swing trades that we have made have doubled in a day or two!

Most of the companies that we trade are frankly terrible companies. They are often small companies with no revenue, products, or cash. Often, they will be up to their eyeballs in debt. They are not companies we would ever buy and hold. The price of these stocks is often manipulated, which makes the price action relatively predictable. This predictability allows us to make money by rapidly trading the short-term price action of the stock.

How to “Predict” the Price of a Stock

The majority of the general public think that stock prices move randomly. Stock prices are not unpredictable because the price depends on people buying and selling. People tend to be quite consistent in their actions. This translates to the generation of certain patterns in the stock price charts that occur over and over again.

Using price charts to predict where a stock price is heading is part of a system called technical analysis. Technical analysis is used by millions of traders to make money in the stock market. It is not an exact science, and of course, the stock price is not guaranteed to actually go up when you think it is! The trick is in properly managing your trading and risk.

Through technical analysis, swing traders analyze how securities are trending and the most likely path of the market. With this information, based on historical data and technical indicators, traders can determine key moments like resistance and support lines, and entry points and exit points.

The resistance line goes along the highest value of the stock before it started going down, while a support line is the opposite—it goes along the lowest value of the security before it began trending up. Entry and exit points mark the most favorable times, according to the trader, for entering or exiting a trade, respectively.

Of course, many trading platforms automate much of the analysis part of trading. They also let traders set automatic orders such as stop-loss orders which trigger automatically at sell signals preset by the trader. Nevertheless, you must understand how analysis works before you count on automated software. A full description of technical analysis is outside the scope of this article, but you can read more about it here if you are interested.

While technical analysis is the usual go-to method when swing trading, it is not the only way to locate smart trading opportunities. Fundamental analysis, whereby you’d look at various company reports and filings to determine a company’s health and potential, is also one of the many complementary tools that let traders make better decisions.

Trend Trading Strategy

There is a variety of trading strategies, and so it’s best to try your hand at them to find the one or ones that work best for you.

Trend trading is one of the main ways that we make money stock trading. Basically, we look for a price chart that shows that a stock is consistently making higher prices—in other words, the stock is in an uptrend.

We look for strong uptrends in a stock and wait for the perfect purchase price. The idea is simple—we buy the stock with the anticipation that it will continue the trend (at least in the short-term). If it does what we expect, then we ride it for a few days and sell it for a profit. If it doesn’t, then we sell it quickly and move on to the next stock.

When a stock shows a strong and continuous trend, it is usually referred to as either a bear market or a bull market. Bearish markets refer to trends that are going downwards, i.e., the price is declining. In bullish markets, the stocks are going upwards, i.e., the price is rising. When a rising stock is reversing its uptrend, it is doing a pullback, so it is starting a countertrend. A countertrend is also a declining stock which is beginning to ascend.

Let me show you an example of how this works and explain how you can do this as well.

The Uptrending Channel Pattern

I want to illustrate the simplicity of trend trading by showing you one of the most straightforward chart patterns—the ascending channel pattern.

The channel pattern can be easily explained by plotting a chart and just drawing two straight lines to show what the price direction of the stock is. Check out the nice uptrend in the price of Amazon stock over the last 9 months (below).

You can plot charts of any stocks like this for free at stockcharts.com. You will have to draw in your own trend lines though unless you purchase a premium version of the software.

The Amazon chart shows a nice uptrend where the price of the stock bounces between the two blue lines that I have added in. The top and bottom blue lines show the resistance and support, respectively. Active traders are monitoring these levels, anticipating when to buy and sell the stock and you can do the same!

There is a high probability that when the price of the stock falls to the blue support line, other traders will buy at these price levels, causing the cost of the stock to go back up. When you understand this simple concept, making money trading becomes a lot easier.

The opposite is true when the price of the stock increases to levels around the top blue line (resistance). Other traders will sell the stock at this point, and the pattern repeats. Do you see how there is a degree of predictability in stock prices?

These uptrending channel patterns also happen intra-day as well, which allows for trades that only take a few hours to work. This is the main difference between swing traders and day traders—the former hold securities for a couple of days up to a couple of weeks; the latter hold them for no longer than a day. Both trading styles, naturally, come with pros and cons; however, swing trading is more suitable for beginners given the fast-paced dynamic of day trading.

Short-Term Profits from the Uptrending Channel Pattern

When you have identified an uptrending channel pattern, you can buy in at the support lines and sell at the resistance levels. You can sell part of your position and let the rest ride the uptrend until the trend breaks down.

These types of price patterns are not guaranteed to actually continue when you buy in. Sometimes they just break down. The Amazon chart above is an excellent example of what can happen. In September the trend failed, and the price dropped dramatically.

This is where money management and discipline can make the difference—if you cut the loss quickly, then you will probably be successful. If you hope that the price will come back up, then you will likely just lose money trading. It is better to sell for a small loss than risk a much bigger one—remember you can always buy back in if the trend is re-established.

Whether the stock is expected to move upwards or downwards, or in bullish or bearish manner, can be deducted through a value called Simple Moving Average (SMA). SMA looks at the moving average performance of a security’s closing price for a set period.

Always remember that these trends and patterns are just high probability trade setups—they don’t work all the time. Sure, they are likely to work. However, the real secret to making consistent profits is to hope for the best but plan for the worst. If you had bought into Amazon in September and stubbornly held your position, you would have lost 30% in 4 weeks.

Conclusions

We trade stocks using the simple trend pattern described above. We also use three simple chart patterns that are slightly more complex but still quite straight forward. Check them out if you want to learn more about how we make money consistently.

Stock trading has changed our lives for the better, and it is a fantastic way to make some extra money from home. It can be quite a passive income source, but the learning curve does take time, and it can be extremely hard work initially. You can get started with a tiny amount of money (e.g., $100) while you practice and learn a good strategy. On top of that, you can adapt your swing trading strategies to trade with other securities such as Forex, ETFs, options, futures and commodities, thereby diversifying your portfolio.

Author Bio

Russell Barbour is an experienced stock trader and online entrepreneur. He lives in New York with his wife (Maleah).  Russell blogs about personal finance, stock trading, investing and side hustles that you can start to make extra money. When he is not working he enjoys rock climbing, mountain biking and swimming. You can follow him on social media:

Pinterest: https://www.pinterest.com/Unconventional_Prosperity

Facebook: https://www.facebook.com/UnconventionalProsperity

About the Author:

Jeremy Biberdorf is the founder of Modest Money. After working many years in the website marketing industry, he decided to take on blogging full time and also get his finances headed in the right direction. Also check out his contributions to Equities.com and Benzinga.

Leave a Comment

Your email address will not be published. Required fields are marked *