Swing Trading is Not Investing
Learn how to expand your investing opportunities by creating a separate swing trade portfolio to actively participate in today’s most active stocks.
When evaluating how to manage your portfolio, every individual should identify the objective of their portfolio. A proper plan for your portfolio will allow the manager to properly identify risk, which is the most important aspect of any investing or swing trading decision.
Let’s think about it this way. Would a racecar driver buy a minivan to win a race? Would a contractor buy a motorcycle to evaluate work sites? It’s silly when you think about it, but often traders and investors alike select stocks ill-suited for their portfolio.
The objective of an investing portfolio should be asset accumulation or wealth generation. This is achieved through finding and buying stocks with the best long-term growth prospects.
When you buy stocks for investing purposes you are saying you want to be a minority owner of that company. Therefore fundamental analysis is very important as concepts like sales growth, profit margins, earnings and dividends to name a few must be considered.
The objective of a swing trading portfolio is income generation.
This is achieved through consistent and objective execution of your swing trading strategy.
When you swing trade, you are essentially renting stocks for a few days to a few weeks. Hence, the focus on technical analysis and momentum catalysts to create edge and timing for your swing trading portfolio. There is less of a focus on core fundamental analysis, but corporate events such as earning, dividend and new product announcements must be in your radar.
The difference between an investing portfolio and swing trading portfolio should be clear at this point. The goal should be to maintain both and have them compliment each other.
Your investing portfolio should consist of profitable and stable companies, while you swing trade the more active stocks. These active stocks usually include technology start-ups, small to mid-size biotechnology and emerging market companies.
However, as those companies mature and stabilize over time, rotate them into your investing portfolio and find new active names to swing trade. Have clear objective gameplan for both investing and swing trading, allowing you benefit from both strategies without confusing them.by