The natural way to trade is to cut losses short. If you don’t keep them in check, you are an investor. Otherwise you are trading. Swing trading inherently makes use of the stop loss method. If after the entry the price swings into the wrong direction, any sort of swing trading should interpret that as a new swing that has to cause a closing of the current position.
If you swing trade the trend, you automatically adhere to the most valuable ingredient of a trend trading system, the stop loss. On the other hand, swing trading only tries to exploit the short trends within swings. Longer running trends are out of its scope.
But large runs of growth stocks, combined with an aggressive money management that puts a higher percentage of the trading capital into one investment, is often the game changer for traders. Don’t bank on a home run. How often have you heard this trading wisdom? And yet, it is nonsense. It is the large gain the elevates a trader into the next upper league.
That’s why the combination of swing trading and trend trading seems to be favorably. Swing trading methods with the inherent stop loss equivalent are for entering a position. If a trade goes well, the trading system has to be switched to something more like a buy and hold method.
Technically could this be done with a limit gain that has to be reached. If a position is at the point of, say, twenty percent plus, the swing trading algorithm could be dropped and the stop loss gets set to the entry price. If the price is far away from the all time high, this percentage should be made larger. A price at a high is telling the trend trader something, namely that the trend will most likely continue. A price more distant to a high needs to do more to convince a trader that now the next run to a new level is in the cards.
The holding phase and the final exit could either be done with purely fundamental considerations. Stocks that produced a fine gain and that look now less inspiring compared to younger ones would have to be replaced. The other possibility is some sort of trailing stop. One whose trail gets more and more loosened the higher the price goes, seems to be a good idea.
This trading-investing method will eventually yield many small losses and many small gains. If you have a good swing trading system the gains should overcompensate the losses already. On top of that comes the occasional outlier that catapults a trader into another trading dimension.