Swing Trading with Dividend Stocks – Part 1 Introduction
In this multi-part series I’m going to introduce you to Swing Trading and show you how to swing trade using the system and techniques that I use. I’ll be discussing and analyzing my trades along the way, to continue to improve. You might be asking yourself what does trading have to do with the Dividend Geek long-term investing strategy? They cannot be compatible, and that’s absolutely correct I don’t mix the two, but each can have its place as I’ll explain later. First let’s go over some basics:
What is Swing Trading?
The term swing trading actually means different things to different people depending on how they have defined their trading system. To me it is simply trading between the swings in the stocks support and resistance price cycle. In my system I look for the maximum recent support/resistance cycle which usually works out to a holding period between several weeks to several months.
Why Swing Trading?
There are several benefits to swing trading. It can actually help you execute your long-term retirement investing program by helping you keep your retirement investing slow and boring. It provides people who follow the market closely an outlet to actively participate, thereby meeting the basic human need to feel like you are actively doing something. It’s what Jim Cramer calls his mad money. This helps reduce the desire and risk to be poking around and playing with your long-term retirement money, in ways that you should not be doing. If done properly swing trading can also provide short-term gains that can supplement your income or you could pull out your profits (after taxes) each year and invest them into your long-term retirement account to further build your dividend income stream.
How do I keep my swing trading separate from my long-term retirement program
Okay, back to the important principle that swing trading is completely separate from your long-term retirement investing. First off and most importantly is that the money that you set aside for swing trading should be money that you can afford not to have access to or need for any other purpose. So if you don’t have a substantial emergency fund saved up, or student loans to pay off you shouldn’t even be thinking about swing trading. Personally I saved up the capital to fund my trading account, but I have heard some people allocate 5% of their retirement money towards more active short term trading. You keep it separate from your retirement money by opening a standard (non-IRA) brokerage account and funding the account with your swing trading money. Brokerage accounts are subject to capital gains/losses tax and dividend income taxes.
How much money do I need to get started?
To keep commission costs reasonable (within 1%) I would say that probably $4000 would be the minimum to start swing tradings. This would allow you two $2,000 trading blocks of money. If your brokers commission costs are $10 per trade then to complete buy and sell trades would cost you $20 in commission which is 1% of a $2000 trade.
That covers the basic idea and what you’ll need to get started. In part 2 I’ll go over the first step in my system which is to develop a qualified watch list of prospective swing trade stocks.
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Sites That Link to this Post
- Swing Trading - Part 2 Traditional vs Dividend Stocks | Swing Trading : Dividend Geek | November 24, 2014
- this site | September 5, 2017
While on the surface sing trading seems like it makes a lot of sense and follows a certain set of prescribed guidelines, to me it just seems like I’d have to be watching my investments on a much closer basis. Sometimes I like to go to sleep at night and not worry about my portfolio. Look forward to reading more about these investment strategies.
DivHut,
Good point! Swing trading is better suited for those that are already actively watching the market, and will not be for everyone. Anything that would not allow me to sleep well at night wouldn’t be worth doing. I think you’ll find in my future posts that my system is quite different giving it a low worry factor compared to the typical trading system. However, every investor is different and should only act on what they find works for them.
Thanks for commenting!
Glad I logged in this morning and was able to read this blog post as I have recently had many questions with this topic. I have been swing trading with both positive & negative gains for the past 1-2 years. I think it would be extremely beneficial to have a follow up blog/forum post with an active object where we find a current stock with a favorable chart for swing trading. Then information on how to analyze the chart accuratley to maximize the effectiveness of your trades. That way investors & geeks can see in real time how the process works.
Hi Blaine,
Thanks for the site and the discussion.
I really like dividend growth stocks.
I look for 10%+ growth and pay-out ratio below 50%.
I don’t care what the yield is, and think that a low yield indicates that the stock price moves up with dividend increases.
I fell into swing trading by accident.
Over a year ago, Merrill Lynch gave me a basket of growth stocks that pay dividends. I didn’t have near enough money to invest in all 35 stocks. So, I decided to buy the companies that were about to increase their dividends. I expected that the prices would increase in line with the divi increase, over the following 12 months. Most did, but some rose more quickly to the target, in four to eight months. On the theory that most of the price move had already happened, I sold some and moved on to the next stocks that will increase divis.
I recorded 10 years of dividends for each company so that I could see what their practice was as to dollar amounts, percentages, and exact dates declared, x-div, record date, and paid date. This data base guides my trading, or holding, as the case may be. I like to buy about one month before the next divi increase is announced. For example, NKE and V reach their targets quickly, while MMM may take 12 months. When I sell in four to eight months, then the compounding factor increases.
So, I am swing trading right in my retirement account.
I also don’t need bonds when fixed income comes from proven, and growing, streams.
These recommendations are extremely generalizations and I never buy 50% of them.
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