Tuesday, May 6, 2008

Linda Raschke's Basic Rules for Swing Traders

Linda Raschke is a trader I've followed since coming across her interview in Jack Schwager's Market Wizard series. Below is a snippet I've had saved in my email box for years detailing some of her rules for swing traders.

Basic Rules for Swing Traders

Because of the short-term nature of this technique, swing traders must adhere to some very basic rules, including:

  • If the trade moves in your favor, carry it overnight--the odds favor follow-through. Expect to exit the next day around the objective point. An overnight gap presents an excellent opportunity to take profits. Concentrating on only one entry or one exit per day relieves the pressure.
  • If your entry is correct, the market should move favorably almost immediately. It may come back to test and/or exceed your entry point a little, but that's OK.
  • Do not carry a losing position overnight. Exit and play for better position the next day.
  • A strong close indicates a strong opening the following day.
  • If the market doesn't perform as expected, exit on the first reaction.
  • If the market offers you a windfall of big profits, take them to the bank on the close.
  • If you are long and the market closes flat, indicating a lower opening the following day, scratch or exit the trade. Play for better position the next day.
  • It is always OK to scratch a trade!
  • Use tight stops when swing trading (wider stops when trading trend).
  • The goal always is to minimize risk and create "Freebies."
  • When in doubt--get out! You have lost your road map and your game plan!
  • Place your orders at the market.
  • When the trade isn't working, exit on the first reaction.


Stewie said...

love that post. Sounds exactly like the interview i did with Tim Bourquin. I had no idea my style and Linda's style were so correlated. Hey, how about GFA here at $42 on that backtest of last week's breakout? i picked up 1000 shrs at 42.15.

Stewie said...

don't mean that you traded like 'crap'. like we talked earlier. it's probably due to that you are trading a method that worked in last week's market in today chopfest. i am taking the day off on choppy days or at least trading with quarter size.