Make Swing Trading Great Again!

Let's talk about swing trading. Again.

I came across an interesting piece of material I found online: “EYE ON THE MARKET. The Agony & The Ectasy” by J.P. Morgan, hefty, 24 pages paper, published in 2021.

What caught my eye is this, rather serious statement, backed with statistics: “more than 40% of all companies that were ever in the Russell 3000 Index experienced a “catastrophic stock price loss”, which we define as a 70% decline in price from peak levels which is not recovered.”.

For your information:

The Russell 3000 Index is part of the FTSE Russell that provides exposure to the U.S. stock market. Its date of inception was Jan. 1, 1984. The index measures the performance of the largest 3,000 U.S. companies (give or take) representing approximately 96% of the investable U.S. equity market.

So, here it is – almost half of the Market experiences catastrophic losses in the long term. And even a large part of the companies that experience increases – later still experience a significant decline or even a huge fall. In another words, the old proverb "The higher you climb, the lower you fall." in action, so to speak.

And, only 10% of those that experience huge growth are able to maintain such results in the long term. Quite remarkable insight, isn't it?

The Energy sector has had the hardest time. 63% of all companies have experienced negative growth.

So, if we compare the growth of the Energy sector companies relative to the Russell 3000 index as a whole, then 84% of all energy sector enterprises have experienced less growth compared to the index.

And another growing trend:

Every year, the number of companies that are excluded from the S&P500 due to financial difficulties increases, and their place is taken by a new market participant.

Next, let's look at the COVID period and some of the more popular stocks that experienced huge gains.

As we can see, some companies have maintained growth (in the table “FLAT”), and only 4 companies continue their winning streak, and their stock value has increased even after the COVID.

These figures are quite similar to the statistics mentioned above.

And here the question may arise - Why swing trading?

When you look at everything that's been said, it seems logical to invest in indices. Choose a couple of ETFs and forget about everything else. Yes, investing in stock indices is a good thing. Conservative and good. But then you should expect the growth will also be conservative.

As I see it – you should keep part of your portfolio in stock indices. And if you want big growth – then you have no choice but to engage in “stock picking”. That’s it! And this is where the “swing trading approach” comes in handy. When you have developed a logical view of the market and are able to effectively surf these waves or trends. Then the results will not be missed!

Look at the table above. Regularly, stocks experience a rise of 300% and more, but in the end – most stocks also inevitably fall. If you are a swing trader, and the duration of your transactions are somewhere between couple of days to several months – then fix your profit in an upward trend!

As statistics show – a very large number of companies lose in the long term. In that sense, from purely statistical view – fixing your profit in an upward trend is a very attractive and statistically backed up idea.

In another words: Make Swing Trading Great Again! :)

Stay tuned!

Agris