What is Swing Trading? Definition, Pros, Cons & More

What is Swing Trading? Definition, Pros, Cons & More!

Swing trading is when investors capitalize on swings in the market by holding on to a security for an extended period of time. Day trading positions last for less than a day while swing trading can last up to a week. It is used to trade numerous securities such as forex, futures, options, and stocks.

Swing trading is beneficial as it provides more opportunities for profits than day trading and quicker rewards than long-term investments. But on the downside, you need to constantly manage trades as you might miss out on opportunities to make a profit if you don’t act quick.

So what exactly is swing trading?

In its simplest form, traders hold on to securities for an extended period of time to earn a profit. This can range from overnight to several weeks. The objective of swing trading is to identify a trend and find swings within that trend to make a profit. Technical analysis can be used to identify these swings and act on them. Both day trading and swing trading have higher risks and costs than typical investments.

Swing trading is often undertaken by individuals and not large institutions as large institutions trade in large volumes, making it harder to enter and exit the market as required. It is a great option for beginner traders as it allows them to gain experience in trading. Losses can be kept minimal with stop-loss techniques and it provides perspective on both short and long-term trading.

(Video Credit: Elearnmarkets)

Benefits of swing trading

Swing trading is beneficial to beginner investors and for those who need more time to make trading decisions. It comes with several advantages such as:

— Versatility- Swing trading is a good option for people who can’t trade during market hours but still want to remain active traders. You can decide the price at which you want to enter and exit the market and place stops so they the stock value doesn’t go below a certain level- there are some trading softwares that even let you place multiple stop-orders in a day. Additionally, swing trading can be used for numerous securities such as bitcoin and standard options.

— Identify opportunities- Swing trading is generally not adopted by large firms as the trader constantly enters and exits the market but this comes with its own benefits. It allows the investor to identify new opportunities in the market. Looking at a financial chart shows you the long-term trend of stock but this is not always protected by support and resistance. By entering and exiting the market on a regular basis, you can identify opportunities in different markets with new trades. This not only allows you to spread your risk but you also have a lot less capital tied up in a single stock.

— Lower losses- Stop losses result in lower losses than long-term trades. A stop loss on a swing trade maybe 100 pips for a 5-hour chart but a stop loss on a chart over a week can be 400 pips or higher. This allows you to take larger positions on long-term trends. You can also place multiple stop losses in a day to protect your stocks against loss.

— You can have a better understanding of the trades- Swing traders are technical traders and have certain signs and signals to show them when a stock is/will not perform well. Therefore this makes it easier for a swing trader to limit the damages before they occur. Long-term traders cannot do this as trade based on the fundamentals of the stock. A swing trader, on the other hand, needs to be patient and take fewer trades.

Disadvantages of a swing trading

Although swing trading has its benefits, it comes with its own trade-offs. Here are a few challenges of swing trading:

— Unpredictable changes- Swing trades can change dramatically overnight, so if the market changes while you are sleeping, you could be up for a surprise the next morning. In certain cases, even a stop loss won’t be able to protect your trade. Trading is risky in itself and entering and exiting the market means that you are risking the money more often. You are likely to face losses every now and then due to this.

— Expert knowledge- While this might not necessarily be a disadvantage, swing trading requires a trader to be knowledgeable in technical analysis. Looking at a chart to find the high and low points is easy but as a swing trader, you need to identify the entry and exit points as well. Learning these skills takes time and effort and a trader would need to master this before they start swing trading.

— Psychology- You need to have a different mindset when it comes to swing trading. You need to be able to think on your feet and be sure of the decisions you make. As a swing trader is more aggressive than a regular trader who only studies the charts. Swing trading does not provide you with the same leverage as day trading.

Also read: What is Derivative Trading? Futures & Options Explained

Bullish and bearish swing tactics

 Bullish traders

Stocks that are trending in the market rarely go in a straight line. A stock may go up for several days in a step formation and then gradually come back down. When the stock can be seen moving upward, it is said to be in an uptrend. Bullish traders look for the initial upward trend followed by the reversal of this, called the ‘counter-trend’. This is again followed by an upward trend. You should enter a trade only after the original upward trend has resumed.

Bearish traders

Like upward trends, downward trends also move in a step pattern. A stock could trend downward for a number of days, followed by a few days of upward movement and then back to the downward trend. Traders should enter a bearish swing trade when the stock resumes its downward trend. They can do this with a sell-stop limit order.

How to plan your passive income the right way?

How to Plan Your Passive Income The Right Way?

How to Plan Your Passive Income The Right Way?

Hello readers! Today, we at TradeBrains, are covering a topic that might stir up a lot of interest and intrigue within our community. In recent years, we have been seeing a lot of interest among our readers to generate a second source of passive income to meet their financial goals. While stock investors do manage to achieve this when their portfolio companies shell out dividends, the reality is that for most individuals passive income requires conscious planning and periodic review.

Today’s post should help answer some of your questions and perhaps guide you on your financial journey going forward. So let’s get started.

What is passive income?

In the most general sense of the phrase, passive income usually refers to consistent and periodic income you may gain without dedicating large amounts of your time. Some people would even go so far as to say that passive income is the “income you gain while you are asleep”. 

A prudent investor would, however, understand that even though the statement puts across the idea of passive income bluntly, one would have to live in a fool’s paradise to assume that passive income actually requires no work (it requires less work, not zero work). However, by making some smart moves anyone can create a source of income to add more teeth to their financial firepower.

Why do people try to create a passive income source?

In the simplest language, passive income reduces the dependence of your lifestyle on a single income source. In other words, you ensure that you do not put all your eggs in a single basket.

Again here quite a few people may argue that the real benefit of substantial passive income is realized when one does not feel pressured for working extra hours at work to earn a meager overtime pay during uncertain times. When things go haywire in life, which happens more often than not, a second income does indeed come as a relief especially when you carry a financial burden like an enormous EMI on your housing loan.

Another reason which might have some sense is that a passive income usually acts as a force multiplier in your financial journey. You could get additional fire-power for your monthly SIPs or you could buy assets that get you even more side income all the while riding on the power of compounding to grow your wealth over time.

The motivation for generating income could also differ according to a person’s age or situation in life as well. Individuals working in senior management in private sector companies that do not pay pension might actively scout for an income post-retirement than a younger person.

What are the sources of second income?

And a comparison of skill-based and investment based sources of income.

For quite a large section of the society, the main sources of passive income are either in the form of interest gained from bank deposits or rental income from a real estate asset. However, things have changed in the last decade or so, the fixed deposit interest rates are being lowered every year and the real estate prices continue to break a new ceiling in most cities. These two powerful macro trends have rendered conventional sources quite inefficient in developing a passive income source for a young person who has just started earning.

Looking at the other options available, your second income could be either skill/service-based or investment-based. You could sell your existing skills to provide services or advice as a consultant for other people or companies that might need them. Another option could be to collect royalty income from intellectual property or any other creative services. 

But, to play the devil’s advocate, even though selling skill is rewarding, it would still require some time and effort on a consistent basis to generate a steady income. Hence, an investment based income would be more ideal if you are not able to put in lots of time or effort for any reason.

Investment based ideas could include dividend investing, fixed deposits, rental/lease income from real estate, peer to peer lending, etc. In most cases, the metric used to judge an investment based income source would be the interest rate or the yield. Although seemingly easy to execute, an investment base income strategy would require portfolio adjustments based on a periodic review of risk and reward of the portfolio.

For a list of ideas you could refer to another of our articles:

passive income quotes

How to plan your passive income portfolio?

The most important thing to consider while planning your passive income portfolio is time, the time you can invest and also the time you would be willing to wait for your portfolio to build up in value. However, prudence doesn’t hurt and it would be advisable to look at qualitative factors like repeatability and consistency while deciding on your chosen method for generating a passive income. If your passive source also happens to be scalable, then who knows? Maybe one day it might lead you to new and exciting business ventures.

The lazy way to start building a portfolio for most people with significant day time commitments would be to focus on generating steady interest income every month. Although savings schemes and fixed deposit plans have been the conventional go-to strategies, in recent times the rise in web and mobile technology adoption rates have facilitated the feasibility and importance of peer to peer lending platforms as another significant source for earning interest income.

Some people may prefer to keep a mix of side hustles and investment-based income in starting their portfolio, while others may look for only investment based avenues. Although there is no single right way, keeping repeatability and consistency as a priority would really go a long way in helping anyone build a process for growing their passive income.

6 Steps to create a passive income source

Creating a passive income is going to be tough, a lot of time will have to be spent on researching new investment sources, gaining new skills and performing tasks which can be monetized. The whole journey could be a whole lot simpler if we were to follow a process-driven approach. We, at TradeBrains, have compiled a list of things anyone could start doing right away to begin their own passive income portfolio.

1. Evaluate your time

The most important asset you have is your time so it is only reasonable to find out whether a particular side hustle is worth your time or not. In case you do not have too many hours to spare it is perfectly fine to start only on investment based income strategies.

2. Save until it hurts

Be thrifty, pay your EMIs and get out of debt as soon as possible. Try to cut corners wherever possible to get extra cash. Try cooking your own food instead of ordering every time. Only buy things you need from e-commerce websites.

3. Learn about income-generating assets and focus on buying them

Dividend stocks, REITs, government bonds, savings deposits, you name it, anything that provides you income on a regular basis should be included in this list

4. Calculate how much passive income you would need

It’s important to have a figure you can aim to act as a compass else it is possible for you to get lost and even lose motivation towards achieving your goals. A good goal is to try and generate enough alternate income to cover for your rent, food and monthly running expenses

If your annual expenses are around 6lakhs then divide the number by your expected return to get the capital you may need to save up. So if you are expecting a return of 10% from your investments, then having a capital base of 60lakhs would suffice for you to cover your expenses.

5. Grow multiple streams over time, Be diversified

Given the uncertainty of the world we live in, we simply can’t underscore the importance of diversification of income streams. Capital preservation is simply underrated in our daily conversations about money that a lot of the times we even pretend like money cannot be lost in investments. 

If we were to look back into history, after the burst of the dot-com bubble it took roughly 10 years for Nasdaq investors to just break even. Your passive income portfolio should be diversified to absorb any impact in your life in case one single income source stops churning out cash for you.

6. Be patient and don’t give up

All the above steps would amount to nothing if it is not given time to grow. Compounding works and it gives astounding results over large spans of time. Sure the wait to building wealth is always slow and long but it is definitely worth the wait.

BLUE OCEAN STRATEGY meaning

What is Blue Ocean Strategy? Examples, Pros & Cons!

What is Blue Ocean Strategy? Examples, Pros & Cons!

Hello readers! It is a new day and we are back with a new topic of discussion exclusively for you all!

Almost all of us have been to beaches for a weekend getaway or long vacations! If not holidays, we have definitely come across visuals of oceans and seas on social media and televisions. Haven’t we? Well, oceans are vast, deep, massive, wide and are the most baffling natural wonders of the world. Proper explorations and researches can give way to incredible discoveries and provide us information about its scopes and untapped prospects.

In a similar fashion, a path-breaking strategy, known as Blue Ocean Strategy, was introduced by  W. Chan Kim and Renée Mauborgne. It is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. A Blue Ocean Analogy is utilized to unlock the wider, unfathomable, powerful and vast potential in the unexplored market space in terms of profitable growth. This strategic planning theory is an escape from the general notion of benchmarking the competition and focusing on lump sum figures.

What exactly is a Blue Ocean Strategy?

Blue Ocean Strategy is all about devising and acquiring the uncontested market forum by spawning a new demand.

Since the industries are in a state of non-existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd.

In other words, the strategy spurs companies to offer extremely valuable products to the consumers. Thus, it supports the company to incur large profits and surpass the competition. The price tags of the products are generally kept on the steeper side because of their monopoly. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent space.

The kind of leadership and management required to initiate a Blue Ocean Strategy differs from the management of corporations that have short-term ambitions and mainly concentrates on increasing shareholder value by pushing up the stock prices via buybacks, mergers, and acquisitions. The Blue Ocean Strategy can be applied to all the sectors or, businesses and is not limited to just one kind.

On the contrary to the concept of Blue Ocean Industries, there exists Red Ocean Industries. Let us understand the concept in brief before moving to further analysis.

Red Ocean Industries

Red Oceans are those industries that are currently in existence or, what we call the contested market forum.

In Red Oceans, there are well-defined industry perimeters that are known and out in open to all. Due to the acquaintance with the competitive rules and acceptance of the drawn boundaries, the market space gets crowded and there is a consequent reduction in growth and profitability. When the product comes under the burden of pricing pressure there is always a chance that a firm’s operations could come under notable menace.

Companies under Red oceans strive to outperform their rivals by grasping a higher proportion of existing market share at another company’s loss. In order to keep themselves afloat in the marketplace, proponents of Red Ocean Strategy concentrate on creating competitive advantages by examining the blueprints of their peers/competitors. Such a saturated market space makes way for a toxic competition which ends up as nothing but an ocean full of rivals fighting over a dwindling profit pool. Such firms mainly seek to capture and redistribute wealth instead of creating wealth.

These kinds of market forums can be correlated with the shark-infested ocean waters which remain spilled with blood. Hence, the coinage of the term Red Oceans. Thus, the business world has pulled up their socks and is striving to skip the “Red Oceans” to create their very own “Blue Oceans”.

Examples of Blue Ocean Industry

Let us learn how organizations that have followed the path of Blue Ocean Strategy has undergone outstanding growth and profitability!

1) UBER

Uber Cab is a brainchild of the Blue Ocean Strategy and has dramatically transformed the picture of the transportation industry by discarding the nuisance of booking cabs, denial of services, meter issues and unwanted arguments.

It is a ridesharing service that enables customers to book their rides with the ease of swipes and taps. It also permits users to trace a  driver’s progression towards the pickup point in real-time through the medium of a smartphone application called Uber App.

Uber devised a new market by the amalgamation advanced technology and modern devices. It tried to differentiate itself from the regular cab companies and in turn developed a low-cost business model that offers flexible payments, pricing strategies and generates good revenues for both the drivers and the company. In the initial stages, Uber was successful in capturing the uncontested market space but was eventually flooded by the competitors. In spite of that, it continues to command the market and is speedily expanding across the world. As of 2019, Uber approximately has 110 million riders worldwide and holds 69% of the market share in the United States.

2) iTunes

Apple headed into the space of digital music with its unique and eminent product ie. iTunes in 2003. In previous days, conventional mediums like compact discs (CD) were put to use to disseminate and listen to music.

When iTunes ventured into the market, it solved the basic problems which were faced by the recording industry. As a result, iTunes cut down the practice of illegally downloading music while simultaneously catering to the demand for single songs versus entire albums in a digitalized version. High-quality music at a reasonable price offered by Apple became a talk of the town. All the available Apple products have iTunes to download music and have largely ruled the market space for decades. It is also recognized for driving the growth of digital music.

These examples of the Blue Ocean Strategy can enlighten future startups regarding the execution of a  strategic planning scheme and successfully unlocking new demand.

How to find and develop/Launch them?

Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. When there is limited scope for further growth, businesses try and search for verticals for discovering new business lines where they can enjoy the advantage of uncontested market share or ‘Blue Ocean’.

In order to find and identify an attractive  Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The Four Actions Framework emulates strategic triumphs and guides towards the path of launching a Blue Ocean initiative.

The framework poses four key questions, namely:

A) Raise

It includes points that must be blossomed by industry in reference to the line of products, price tags and caliber of services. A startup must analyze the pros and cons of the existing organizations and their strategies for key aspects of differentiation.

2) Reduce

It points out the arenas of an organization’s product or, service which foreplays a crucial character in the industry but is not absolutely essential in nature. Therefore,  the proportion of the products can be curtailed without entirely eradicating them.

3) Eliminate

It points out the arenas of an organization or industry which could be eliminated absolutely for the purpose of cutting down the costs and also to fabricate a completely new market. At times, newly invented products can lead to self-assassination of the existing products and thus,  leads to an unwillingness to interfere with the current revenue source.

4) Create

It nudges the companies to shape up trailblazing products. The introduction of an entirely new product line or, service leads to the establishment of a new market and points of differentiation. Identification of the needs of the target market provides sound knowledge regarding the addition of unique measures and consequently tracking the progress for illustrating a Blue Ocean.

Now that we have discussed the Blue ocean strategy and how to find them, let us also discuss the pros and cons of this strategy.

Pros of Blue Ocean Strategy

Here are a few of the advantages of using the blue ocean strategy:

  1. Blue Ocean Strategy cooperates with organizations to find uncontested markets and avoid matured and saturated markets.
  2. It assists to move from the impediments of competing within the existing industry and cost structure and to gradually migrate towards constructive value improvement. In short, it demonstrates how to break free from the traditional strategic models and to expand profitability and demand for the industry by using the analysis.
  3. Value innovation is the backbone of a Blue Ocean Strategy. Value innovation is the alliance of innovation with price, utility, and cost positions. It eventually creates new value/demand for consumers and thereby, expands the chances of growth potential.
  4. Blue Ocean Strategy enables a fundamental transformation in mindset. It develops mental horizons and helps in recognizing the opportunities.
  5. Blue Ocean Strategy is based on “time and again” proven data rather than unproven theories. It is based on practical approaches that have proven results during live market executions.
  6. Products under the concept of the Blue Ocean Strategy doesn’t make a consumer choose between value and affordability. It is the simultaneous pursual of differentiation and low-cost theorem.
  7. Creating blue oceans is non-zero-sum with high payoff possibilities.

Cons of Blue Ocean Strategy

Let’s us also look at a few of the common cons of using this strategy:

  1. It’s quite difficult to come up with futuristic ideas and identify colossal and untapped markets.
  2. Nominating an articulate Blue Ocean Strategy is a result of a calculated and detailed research process backed by extensive analysis. It is to be kept in mind that there is no magic formula or, silver bullet.
  3. Venturing into a market in the early phase comes with baggage of risk. There is a high possibility that the customers might not understand the grass root of the products and services because of the absence of a fully developed technology.
  4. Production of a new market is never easy because an organization has to be smart and clear regarding its customer base and ways to impart education about new ideas, new products, and new solutions. It also requires clarity about the trade-offs, obstacles and the workforce.
  5. Opting for a different ocean i.e the Blue Ocean, requires a lot of patience, persistence trust, preparation, and faith. It is also extremely paramount to look at initial indicators for confirming the fact that “fishing”  is not being done in a dead sea.
  6. On finding a new ocean, other sharks from the saturated markets aka the Red Oceans and other adjacent oceans will be lured to the new market. Thus, building strategically defensive alternatives would be a wise step. Defensive alternatives majorly consist of brand power, technological advancement, and speed of execution.

Also read: What is a BCG Matrix? Explanation with Example!

Summary

Let us quickly summarise what we discussed in this article.

A path-breaking strategy known as Blue Ocean Strategy is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. It is all about devising and acquiring the uncontested market forum by spawning a new demand. Since, the industries are in a state of non- existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent.

These days, the Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. In order to find and identify an attractive  Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The framework poses four key questions, namely, Raise, Reduce, Eliminate & Create.

That’s all for this article. Let me know what you think about the blue ocean strategy in the comment section below. Cheers!