My Personal Key Points for Swing Trading

Even though I haven’t achieved results in swing trading yet and don’t really have any ‘key points’ to speak of,
I still think it’s important to organize my own takeaways, so I’m going to try writing them down.

▼ Consider capital management as separate from exit strategy

‘Where to cut losses’ and ‘how much will be lost if I cut losses there’ are separate judgments.
For example, even if the plan is to cut losses and exit 100 yen lower, the loss is 10,000 yen for 100 shares.
If it’s 1,000 shares, the loss is 100,000 yen.
Even if the entry and exit points are the same, the impact on the account is vastly different.
Especially when buying on the way down (averaging down), you need to consider in advance how much the entire position will lose once the final addition is executed.
If you judge that you ‘entered small’ by looking only at the initial position, the trade will lack consideration for the risk after adding more.
Also, capital management should include the bias when holding multiple stocks.
For example, if you hold several stocks in the same theme, you need to recognize not only the individual share counts but also the degree of risk you are taking on that entire theme.

▼ It is easier to think of supply and demand as separate from technicals

It gets confusing if you lump supply/demand and technicals together.
So, for the sake of organization, I classify them as follows:
Technicals: What the price and volume status is.
Supply and Demand: What kind of buyers and sellers are involved, and what kind of trading is likely to emerge in the future.
For example, ‘significantly deviated downward from the 5MA’ is a technical state.
Adding questions to that like ‘Is there a basis for temporary liquidation selling?’, ‘Is additional panic selling likely from those who bought during the decline?’, ‘Do many people seem to want to sell once it recovers?’, and ‘Is there a basis to expect short covering?’ is supply and demand.
In contrarian trading, separating the ‘reason for the large drop’ from the ‘reason for thinking selling will weaken’ makes the basis for entry clear.
The hypothesis you form for a decline where the premise of earnings evaluation has changed (e.g., the recent semiconductor crash) is different from one for a decline due to temporary order imbalances.
However, you cannot determine the trading entities or their circumstances based solely on price and volume.
Treat confirmed facts and speculations regarding supply and demand separately.

▼ Edge is an element that evaluates the entire strategy

This is an evaluation of whether there is a basis for profit to remain in trading that combines market conditions, stocks, entry, exit, and position size.
Basically, I think in terms of: Expected Profit/Loss = Win Rate * Average Profit – Loss Rate * Average Loss – Average Trading Cost.
You cannot evaluate it sufficiently just by saying ‘the win rate is high’ or ‘I set the profit margin to twice the stop-loss width.’
You should verify the frequency of actually reaching the set profit and include losses that exceed the plan.
For example, if you are aiming for a return to the 5MA, the verification target is not just ‘did the deviated stock return,’ but whether profit remained after deducting costs based on the actual way of buying on the way down and the exit rules, which determines whether there is an edge or not.
Checking costs is especially important for short selling.
In institutional margin trading, if a reverse daily fee occurs due to a stock shortage, it becomes a burden on the seller, so it must be considered in conjunction with the holding period.

I started by writing down the key points I felt were indispensable while roughly performing swing trades.
When I was a beginner, I tended to focus only on methods, methods, methods! I wonder if I can consider it growth as a trader that I’ve started to pay attention to capital management and edge.
In any case, there are still mountains of points to dig deeper into, and it seems I won’t be short on article topics for a while.