Week 6: Swing Trading

Swing trading is the course’s first case study in multi-day exposure: a position held over days or weeks sits through market closes it can’t react to, meaning overnight gaps and scheduled events can move price before a stop even gets the chance to trigger at the level it was set. It leans directly on Week 4’s chart vocabulary and Week 5’s risk toolkit — a moving average here is introduced as a lagging summary of trend, not a standalone buy or sell signal — and every worked example pairs an entry idea with the stop and position size Week 5 already covered.

The question this week answers#

A position held overnight is exposed to prices the account never got to react to. What does a complete swing trade plan look like once that exposure, Week 4’s chart vocabulary and Week 5’s risk toolkit are combined?

By the end of this lecture#

• define swing trading by its typical holding period
• explain why a moving average is a lagging summary of trend, and what that limits it from doing
• build a full entry–invalidation–size–exit plan for a simulated setup
• explain what changes when the same idea is compressed into day-trading holding periods (Week 7)

Key ideas#

Swing trading holds positions from a few days to a few weeks — long enough that intraday noise from Week 7 matters less, short enough that Week 3’s investing-style patience doesn’t apply either. Every one of those overnight closes is capital tied up and exposed while the market isn’t open: a stop set at $45 assumes the next available price is near $45, but a gap caused by news released after the close can open well below it, and the stop fills at whatever price is available next, not the price it was set at.

A moving average, introduced in Week 4’s arithmetic, is a lagging summary: because it’s an average of past closes, it only reflects a change in trend after that change has already been underway. This course treats it as one input for describing trend, not a trigger that says “buy” or “sell” on its own — the strategy structure below is what actually turns an observation into a plan.

Every swing setup in this course is described with Week 5’s six parts: observation, assumption, entry, invalidation, risk, exit. Skipping any one of them is treated as an incomplete plan, not a shortcut.

A worked example#

A simulated watchlist entry, “Fernbridge Retail”:

• observation: price has been in an uptrend for three weeks and the 20-day moving average is sloping upward
• assumption: the uptrend continues rather than reverses
• entry: buy on a pullback to $48, near a previously observed support zone
• invalidation: a daily close below $45 would mean the support zone failed
• risk: sized per Week 5’s method, at 1% of account risk
• exit: sell at a target of $54 (a previously observed resistance zone), or on the invalidation being hit, whichever comes first

The numbers#

Applying Week 5’s position-sizing formula to this setup, for a $10,000 account risking 1%:

10,000 × 0.01 = $100 risk budget

Stop distance is entry minus invalidation: 48 − 45 = $3.

100 ÷ 3 = 33.3 → 33 shares

If the target of $54 is reached: reward per share is 54 − 48 = $6, so total reward is 33 × 6 = $198 against 33 × 3 = $99 risked — an R-multiple (reward divided by risk) of roughly 2:1. The R-multiple doesn’t say the trade will work; it says what’s being risked relative to what’s being sought if it does.

What a diagram would show#

A concept diagram overlaying the four plan stages — entry, invalidation, risk, target — directly onto a simulated candlestick chart with a moving average line, so the abstract observation/assumption/entry/invalidation/ risk/exit structure and the actual price levels sit in one picture.

Try it yourself#

The takeaway#

A moving average describes a trend that has already been forming — it doesn’t call a turn in advance. What makes a swing trade a plan rather than a guess is the full structure around it: a stated invalidation and a size set by Week 5’s method, not the indicator alone. None of that structure removes the multi-day exposure itself — a gap can still fill a stop somewhere other than where it was set — which is exactly the risk Week 7’s shorter holding period is built to avoid. Week 7 keeps this same structure and compresses the holding period down to hours.