Pradeep Bonde on the Essence of Swing Trading

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The essence of swing trading is to capture explosive moves after a brief sideways consolidation and sell into strength. Short term momentum swings in stocks are driven by supply demand imbalances.

When a stock gains momentum, it attracts more speculators. After a big move, many stocks tend to pause in a range, defined by the new supply/demand dynamics. Any small catalyst can lead to a breakout of the range. Many market participants assume that the already established trend is likely to continue and enter in expectation of a breakout from the range, hoping of capturing the next part of the swing. This often leads to momentum bursts lasting 3 to 10 days.

The underlying cause for stock momentum can be fundamental driven, news driven, sector driven, or often sentiment driven. Once you understand this structural phenomenon of momentum bursts, you can exploit it to capture short term swings of 3 to 10 days. Those swings offer 10 to 30% opportunities in short period of time.

Source: Chapter 26 – The Trend Intensity Breakout Setup by Pradeep Bonde, @stockbee

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