Wednesday Wealth Recap
- Every investor has heard it before: “The trend is your friend.” But which trends are on your side? And how do you know which ones to follow? Alexander Green has 10 every investor should know about.
- Nicholas Vardy loves a good quote. It can summarize a lifetime’s worth of wisdom in just a few words. And for investors, it can serve as a reminder to focus on important wealth-building goals.
- ‘Tis the season… earnings season, that is. And Chief Income Strategist Marc Lichtenfeld knows exactly how to profit.
Paul Tudor Jones II is one of the most successful hedge fund managers of all time.
Today, he is No. 108 on the Forbes 400 with a net worth of $5.8 billion.
How did Tudor Jones accumulate his vast fortune?
He did it primarily by generating profits in the stock market from short-term “swing trading.”
As Tudor Jones puts it, “I have always been a swing trader, meaning that I believe the very best money is to be made at the market turns.”
And Tudor Jones isn’t alone.
Mathematics professor Jim Simons founded Renaissance Technologies in 1982.
Since 1988, Simons’ Medallion Fund has generated average annual returns of 66% before fees.
Bloomberg has called Simons’ quant system “a money printing press.”
But Simons experienced extraordinary success only after he began to focus on identifying reliable and repeatable short-term patterns in the market in 1990.
Today, Simons works with an army of rocket scientists who spend their lives mining reams of data going back to the 1700s to pick stocks.
For the Medallion Fund, the average holding period is two days.
That means that Simons, the most successful investor in history, is a swing trader.
The good news is that, thanks to the explosion in computing power, you can replicate Tudor Jones’ and Simons’ swing trading success in your own portfolio.
Let me explain…
So Just What Is Swing Trading?
Swing trading is an active approach to trading that profits from short-term stock moves.
The process of swing trading goes like this:
- Identify the stocks that are likely to move soon.
- Enter a position.
- Wait for the stock to rebound to what I call its “primary trend.”
- Sell your position two to 10 days later to lock in your gains.
Pretty straightforward, right?
This approach allows you to make money no matter what the overall stock market is doing.
What a Successful Swing Trade Looks Like
Let’s look at some examples of the kinds of successful swing trades that made Tudor Jones and Simons billionaires.
Candlestick charts offer a wealth of information on where a stock is headed next.
Swing traders look for streaks. They want to identify periods where every day is the same color.
In the chart above, you can see instances where the stock goes red many days in a row because traders are trading in lockstep… pushing the stock down…
Then the reversal happens.
All it takes is one upward swing, and suddenly the algorithms of large traders change course.
They swing back to buying instead of selling.
When this happens, the days afterward all go green.
Let’s look at another example.
You can clearly see here that this stock suffered several big consecutive down days.
But then it reversed.
It began with the first green bar. And then the stock swung higher.
On this swing trade, you could’ve made 125% in nine days.
Here’s another example…
There’s a drop of six consecutive days. Then a reversal day, followed by the inevitable swing upward.
This single trade would’ve made you 104% in less than a week.
In all these examples, you are seeing algorithmic trading in action.
Again, the quant algorithms are programmed to pick up similar patterns.
They often operate in lockstep. So when one trading system is selling, most of the others are too.
Then, as the sentiment swings in a positive direction, the same stocks rebound, almost as predictably as day follows night.
In my Oxford Swing Trader trading research service, I use sophisticated software similar to what the biggest hedge funds use. So if my computers switch from selling to buying, it is very likely that the other computers are doing the exact same thing.
All this is invisible to most investors.
But computers programmed with the right algorithm can recognize these patterns in milliseconds.
Once you know what to look for, predicting these movements becomes straightforward.
Now, there’s no guarantee that all swing trades will generate big gains within 10 days or so.
But many of them do.
My Oxford Swing Trader trading research service recommends an average of two swing trades like this each week.
So you have plenty of opportunities – about 100 trades a year, in fact – to generate quick gains using swing trading methods.
Click here to watch Nicholas’ latest video update.