Transcription
Swing TradingFORDUMmIES‰by Omar Bassal, CFA
Swing TradingFORDUMmIES‰
Swing TradingFORDUMmIES‰by Omar Bassal, CFA
Swing Trading For Dummies Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.comCopyright 2008 by Wiley Publishing, Inc., Indianapolis, IndianaPublished simultaneously in CanadaNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except aspermitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the priorwritten permission of the Publisher, or authorization through payment of the appropriate per-copy fee tothe Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600.Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing,Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, 317-572-3447, fax 317-572-4355, or online at http://www.wiley.com/go/permissions.Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for theRest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com and related tradedress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the UnitedStates and other countries, and may not be used without written permission. All other trademarks are theproperty of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendormentioned in this book.LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NOREPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OFTHE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BECREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIESCONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THEUNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OROTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OFA COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THEAUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCEOF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSESTHE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS ITMAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THISWORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN ANDWHEN IT IS READ.For general information on our other products and services, please contact our Customer CareDepartment within the U.S. at 800-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002.For technical support, please visit www.wiley.com/techsupport.Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic books.Library of Congress Control Number: 2008933744ISBN: 978-0-470-29368-3Manufactured in the United States of America10 9 8 7 6 5 4 3 2 1
About the AuthorOmar Bassal, CFA is the head of Asset Management at NBK Capital, theinvestment arm of the largest and highest rated bank in the Middle East.There, he oversees all asset management activities for institutional and highnet worth individuals investing in the equity markets of the Middle East andNorth Africa (MENA). Prior to joining NBK Capital, Mr. Bassal was a portfoliomanager at Azzad Asset Management, where he managed mutual fundsand separately managed accounts. Mr. Bassal also worked as an analyst atProfit Investment Management and launched a socially responsible hedgefund in 2002. He holds an MBA with honors in finance, management, and statistics from the Wharton School of Business at the University ofPennsylvania. Additionally, he graduated summa cum laude with a Bachelor’sof Science degree in Economics, also from the Wharton School. He hasappeared on CNBC and has contributed articles to Barron’s and TechnicalAnalysis of Stocks & Commodities.
DedicationTo my mother, my mother, and my mother — Maha Al-Hiraki Bassal. To myfather, Dr. Aly Bassal. And my sisters, Suzie and Sarah. To my loving wife,Salma, and my brother-in-law, Hisham. And to my beloved nephew, Mostafa.They have always supported me in easy and difficult times.Author’s AcknowledgmentsI don’t believe any experience could possibly have prepared me for the rigorous schedule required to write a book. I can’t tell you how many weekends,evenings, and holidays were required to write Swing Trading For Dummies.The effort was, of course, worth it. But I did miss several episodes of Lost,The Office, and other shows. Alas, the cost of writing books isn’t measured intime alone.Before I turn this section into an autobiography (which I should pitch toWiley as my second book, come to think of it: Omar Bassal For Dummies!), letme thank those who deserve thanks (give credit where credit is due, I’m told,is the way the kids are putting it these days). I first learned of this opportunity through Susan Weiner, CFA — a skilled and professional investmentwriter. Susan told me about a search Wiley was conducting to find an authorfor this book. Marilyn Allen, my agent, pitched me to Wiley. I’m honoredWiley offered me the opportunity to write this book. Thank you, StacyKennedy, for your confidence in me and your buy-in.Writing the book, as you may have gleaned from my previous comments, wasa grueling, tough process, and Kristin DeMint was an invaluable resource. Shewas my project editor and made sure the book progressed. She often jokedthat she knew nothing about swing trading. But her “weakness” was in realitya strength. Not being an expert in the subject meant Kristin could offer helpful comments on what might confuse a novice when I made assumptions ordidn’t properly explain ideas. Kristin also kept a watchful eye when deadlinesapproached. Oh how I didn’t want to draw her ire. (I’m half joking. She’sactually a very sweet person . . . as long as I didn’t miss my deadline!)As my trading mentor, Ian Woodward, once said: Many hands make lightwork. In addition to Kristin, many Wiley staff members worked behind thescenes. Russell Rhoads, the technical editor, ensured I wasn’t making thingsup, and other editors — Todd Lothery, Jennifer Tucci, and Elizabeth Rea —made sure my grammar made cents. (They must’ve missed this part!)Though not involved directly in my project, per se, my family supported methroughout. That meant a lot. It’s not something I can put into words — evenas a writer.
Publisher’s AcknowledgmentsWe’re proud of this book; please send us your comments through our Dummies online registrationform located at www.dummies.com/register/.Some of the people who helped bring this book to market include the following:Acquisitions, Editorial, andMedia DevelopmentProject Editor: Kristin DeMintAcquisitions Editor: Stacy KennedySenior Copy Editor: Elizabeth ReaCopy Editors: Todd Lothery, Jennifer TucciAssistant Editor: Erin Calligan MooneyComposition ServicesProject Coordinator: Erin SmithLayout and Graphics: Stacie Brooks,Reuben W. Davis, Nikki Gately,Melissa K. Jester, Christine WilliamsProofreaders: Laura Albert,Context Editorial ServicesIndexer: Potomac Indexing, LLCTechnical Editor: Russell RhoadsEditorial Manager: Michelle HackerEditorial Assistants: Joe Niesen,Jennette ElNaggarCover Photo: ACE STOCK LIMITED/ AlamyCartoons: Rich Tennant(www.the5thwave.com)Publishing and Editorial for Consumer DummiesDiane Graves Steele, Vice President and Publisher, Consumer DummiesJoyce Pepple, Acquisitions Director, Consumer DummiesKristin Fergusan-Wagstaffe, Product Development Director, Consumer DummiesEnsley Eikenburg, Associate Publisher, TravelKelly Regan, Editorial Director, TravelPublishing for Technology DummiesAndy Cummings, Vice President and Publisher, Dummies Technology/General UserComposition ServicesGerry Fahey, Vice President of Production ServicesDebbie Stailey, Director of Composition Services
Contents at a GlanceIntroduction . 1Part I: Getting into the Swing of Things . 7Chapter 1: Swing Trading from A to Z . 9Chapter 2: Understanding the Swing Trader’s Two Main Strategies . 25Chapter 3: Getting Started with Administrative Tasks . 41Part II: Determining Your Entry andExit Points: Technical Analysis . 57Chapter 4: Charting the Market . 59Chapter 5: Asking Technical Indicators for Directions . 89Chapter 6: Analyzing Charts to Trade Trends, Ranges, or Both . 117Part III: Digging Deeper into theMarket: Fundamental Analysis . 141Chapter 7: Understanding a Company, Inside and Out. 143Chapter 8: Finding Companies Based on Their Fundamentals . 163Chapter 9: Six Tried-and-True Steps for Analyzing a Company’s Stock . 181Part IV: Developing and ImplementingYour Trading Plan . 201Chapter 10: Strengthening Your Defense: Managing Risk . 203Chapter 11: Fine-Tuning Your Entries and Exits . 231Chapter 12: Walking through a Trade, Swing-Style . 247Chapter 13: Evaluating Your Performance . 263Part V: The Part of Tens . 277Chapter 14: Ten Simple Rules for Swing Trading. 279Chapter 15: Ten Deadly Sins of Swing Trading . 289Appendix: Resources . 299Index . 309
Table of ContentsIntroduction . 1About This Book . 2Conventions Used in This Book . 3Foolish Assumptions . 3How This Book Is Organized . 4Part I: Getting into the Swing of Things . 4Part II: Determining Your Entry and Exit Points:Technical Analysis . 4Part III: Digging Deeper into the Market: Fundamental Analysis . 4Part IV: Developing and Implementing Your Trading Plan . 5Part V: The Part of Tens . 5Icons Used in This Book . 5Where to Go from Here . 6Part I: Getting into the Swing of Things . 7Chapter 1: Swing Trading from A to Z. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9What Is Swing Trading?. 10The differences between swing trading andbuy-and-hold investing . 11The differences between swing trading and day trading . 12What Swing Trading Is to You: Determining Your Time Commitment . 13Swing trading as your primary source of income . 13Swing trading to supplement income or improve investmentreturns . 14Swing trading just for fun . 15Sneaking a Peek at the Swing Trader’s Strategic Plan . 15The “what”: Determining which securities you’ll trade . 16The “where”: Deciding where you’ll trade . 18The “when” and the “how”: Choosing your tradingstyle and strategy . 19Building Your Swing Trading Prowess. 24Chapter 2: Understanding the Swing Trader’sTwo Main Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Strategy and Style: The Swing Trader’s Bio . 25Two forms of analysis, head to head. 26Scope approach: Top down or bottom up? . 27Styles of trading: Discretionary versus mechanical . 28
xiiSwing Trading For DummiesWrapping Your Mind around Technical Theory . 29Understanding how and why technical analysis works . 29Sizing up the technical advantages and disadvantages . 31The two main aspects of technical analysis . 33Appreciating
evenings, and holidays were required to write Swing Trading For Dummies. The effort was, of course, worth it. But I did miss several episodes of Lost, The Office, and other shows. Alas, the cost of writing books isn’t measured in time alone. Before I turn this section into an autobiography (which I should pitch to Wiley as my second book, come to think of it: Omar Bassal For Dummies!), let .
