Swing trading PSX stocks: a step-by-step approach

Swing trading sits between day trading and long-term investing. You hold a share for days or weeks to catch one move: a breakout, a recovery after results, a rally when interest rates are cut. You're not betting on where the company will be in five years. You're betting on where the price will be next week.

It's a skill, it takes time to learn, and most people who try it lose money at first. This guide explains how traders on PSX approach it, so you know what you are getting into.

Why PSX suits swing trading

• Prices move. Individual PSX shares often move 3–8% in a day on news or heavy volume, and the KSE-100 regularly moves around 1% in a session.
• Sectors move together. Pakistan's economy runs in clear cycles of interest rates, inflation and the rupee. When the State Bank cuts rates, cement, banks and car makers often rise as a group.
• Many retail investors. Individuals make up a large share of trading on PSX. They tend to react late and then overreact to news, which creates the swings traders look for.

What traders check before a trade

No single signal is reliable on its own. Traders look for several pointing the same way. You can see most of these in the Technicals tab on any Nafa stock page.

1. Volume: are buyers stepping in?

Rising prices on rising volume are more convincing than rising prices on thin volume. Signs that buyers are accumulating:

• Volume above its 20-day average on up days, and lower on down days.
• The accumulation/distribution line rising even while the price moves sideways.
• Unusually heavy volume without a big price move, which often comes before one.

2. Momentum: is the move under way?

• RSI between roughly 45 and 70: momentum is up, but the share isn't yet overbought.
• MACD above its signal line.
• The price above its 20-day moving average.

3. Fundamentals: is anything working against you?

Even for a two-week trade, a company with falling profits faces steady selling. Avoid shares where:

• Earnings have been falling for several quarters.
• A rights issue or other dilution has been announced.
• Results are due during the trade. A results day can move the price 10% either way.

4. The chart: where are you wrong?

Before entering, decide two prices:

• Support below your entry. If the price breaks it, the trade has failed and you sell.
• Resistance above. This is your target.

The distance to the target should be at least twice the distance to your stop. If support is 5% below, the target should be at least 10% above.

Common patterns on PSX include range breakouts (a share leaves a price range it held for weeks, on heavy volume), flags (a short pause after a strong move) and pullbacks to a rising moving average.

5. Timing the entry

• Buy on the breakout day, or the first pullback after it. Don't chase a share that has already run 15%.
• Look for volume at least 1.5 times the average on the breakout day.
• Be wary of buying in the last half-hour, when day traders often take profits and prices can reverse.

Managing the trade

• Size it so a loss is affordable. Many traders risk no more than 1–2% of their account on one trade. If your stop is 5% below entry, that means a position of 20–40% of the account at most, and usually much less.
• Move your stop up. Once the trade is 8–10% in profit, move the stop to your entry price so it can't turn into a loss.
• Take some profit. Selling a third to a half at the first target locks in gains; let the rest run with a rising stop.
• Use a time limit. If nothing has happened in two weeks, the reason for the trade has probably gone. Exit and move on.

Sectors that often set up swings

• Cement: around monthly dispatch figures and interest rate decisions. See cement stocks on PSX.
• Oil and gas exploration (OGDC, PPL, MARI): on oil prices and circular-debt news. These are large, heavily traded shares, so it's easy to get in and out.
• Banks: after quarterly results and policy rate meetings. See banking stocks on PSX.
• Technology (SYS): on the rupee and IT export figures.

The mistakes that cost the most

• Trading too often. Every buy and sell carries brokerage, exchange and clearing charges and taxes, and short-term gains are taxed as capital gains. Small, frequent trades can lose money even when you're right more often than not.
• Ignoring the market. A good chart in a sector everyone is selling rarely works out. Trade with the sector, not against it.
• Moving the stop. Lowering your stop because you don't want to take the loss is how small losses become large ones.
• Trading through big events. The State Bank's rate decisions, the federal budget and IMF reviews can move the whole market more than any one chart. Many traders avoid opening new trades just before them.

Swing trading is not the only way to invest, and for most people it isn't the best one. If you would rather buy good companies and hold them, start with the best dividend stocks on PSX or the best value stocks.