Welcome to the Traders Nest book club!

If you missed last week’s email we’re working through a batch of trading books I’ve been asked to review.

We put the titles out to vote and Swing Trading by Marc Rivalland won by a nose. So this is the first one we’ll be examining.

I’ve completed my first reading. Now let’s see what treasures wait inside…

First of all, this isn’t a ‘hot-of-the-press’ bright shiny thing. It was first published in 2002, and I like the look of that. I do prefer my trading strategies to be proven ‘evergreen’ approaches.

(NOTE: The author refers to a certain piece of technical analysis software throughout the book. I’ve checked, and it’s still around, but we’ll be checking how user friendly the strategy is on modern ‘industry standard’ trading platforms.)

Now, in terms of the strategy itself, here’s what Marc considers to be a ‘Swing Trade’:

“Unlike day trading or long-term investing, swing trading is not a well-defined term. Broadly, it fits between day trading and long-term investing, in terms of time horizon and in other respects.

A definition which I find useful is:

A swing trade is one which seeks to capitalise on the short-term downswings and upswings in share prices.

…the swing trader will admit defeat when the market moves against him and he will alter his trading stance to take advantage of the newly perceived market direction.”

So essentially we’ll be looking to ride the oscillations in price as a market swings up and down over a timeframe of days (and possibly weeks?)

We will be checking this approach against a basket of markets (including Forex) so don’t worry about the mention of ‘share prices.’ He actually goes on to say himself how he prefers trading the equity index (e.g. the FTSE100, the S&P500, the Dow Jones) rather than individual shares to avoid company-specific risk.

And he backs-up the approach with a quote by maverick market maestro, W.D. Gann:

“A study of swings in active stocks will convince a man that he can make far greater profits in swings than in any other way of trading.” -W.D. Gann

The underlining was added by yours truly. But it sounds promising so far.

Now let’s see what’s actually involved in trading the method…

It is a chart-based approach (using technical analysis rather than fundamental analysis) and it leans on two types of chart:

1) “Gann Swing Charts.” Which are bar, or candlestick format, with particular criteria applied to the price action of the underlying market (i.e. we’re looking for certain ‘patterns’ to occur)

2) Point & Figure charts. Which at first glance look like a massive game of noughts and crosses. But once you get the hang of them are actually elegant and very effective. (I do like a P&F chart, so I’m looking forward to seeing them in action here.)

And like I said, we’ll be trying to use easily-available platforms and charts. We’ll try to avoid the need to get tooled-up with anything fancy or expensive, and this will be a key test of the method.

How big are the trades?

Marc is assuredly realistic when it comes to money. No claims of overnight riches! Here’s what he says:

“How much should you risk on each trade? It’s impossible to say. It depends on each individual’s risk profile.

Courtney Smith makes a persuasive case for not over-trading. He suggests that having decided where your stop loss should be, you should not risk more than 1% of your equity on any trade.

Undoubtedly it is the right advice for beginners. More experienced traders may feel able to risk more. I certainly do.”

So he rightly describes risk as a personal thing. But I’m certain you’d be able get some trades away with a couple of hundred pounds on a starting bankroll.

NOTE: He mentions using CFDs (Contracts for difference) to do the trades. But Spread Betting is just as effective for this type of longer-term trading these days. And you can start off with those very small stakes-per-point – perfect for a test-run, or for the smaller trading account.

So that’s an overview of what’s involved from the opening section of the book.

At face value it looks like a solid and robust strategy. No crazy risks involved, no ‘magic indicators’ or anything like that. I’m happy so far.

Next, we come to applying the first stage of market analysis – using Gann’s swing charts.

We’ll be delving into Gann’s secrets next week – how the Gann swing charts are constructed and how they can help find good candidate markets to trade.

So if you’re following along at home swot-up on chapter 3 of the book. And let me know of any valuable insights YOU find.

And if you want to catch-up, here’s where you can get your own copy.