Sunday, September 9, 2012

Swing Trading is not investing

This is a clip from a Donald Vialoux blog post September 5, 2012

Quote: A "buy-and-hold" investment strategy is dead. It has been dead for the past ten years. Indeed, it is expected to be dead for another six years. The solution is to use a swing-trade strategy based on a combination of technical, fundamental and seasonal analysis. End Quote.

Don stated the Horizons Seasonal Rotation ETF (HAC) to be a swing-trade strategy.

According to, swing-trading is style of trading that attempts to capture gains in a stock within one to four days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren't interested in the fundamental or intrinsic value of stocks, but rather in their price trends and patterns. Respected technical authors Martin Pring and John Murphy use the term swing-charting to teach the skills of short term trading. A quote from the back cover of Pring’s publication (Technician's Guide to Day and Swing Trading) states “Professional day and swing traders have begun to realize that the disciplines of technical analysis can dramatically increase their trading accuracy and end-of-day profits.”

Buy-and-hold is a long term investment term who’s success depends on what you buy-and-hold. You can buy and hold the broader stock indices and you can engage in stock picking. Buy and hold on the Dow Industrials (through one of the many ETFs) has generated the following annualized returns 30-year + 9.35%, 20-year + 7.24% and 10-year + 4.27%. All returns exclude the annual dividend income of about 2%.

Since inception of November 19, 2009 the swing-trade HAC has generated an annualized return of 8.28 % and the buy-and-hold Dow (DIA) has generated 9.4% - excluding the dividend return of over 2%. Good stock picking does even better with a buy-and-hold on BCE since November 19, 2009 being +19.4%, CNR +17.3% and TD a + 7.2% - all excluding dividend income. Buy-and-hold investors also were big winners in the consumer and REIT sectors over the same time period

One could argue that anything bought in November 19, 2009 would have made money so let us shorten the time frame and look at the current 52-week returns when the market conditions were “difficult”. The buy-and-hold Dow Industrials (DIA) returned +21% - excluding dividend income and the swing-trade HAC did +2.6%. I understand that many investors do not have the patience or the skills for buy-and-hold investing but clearly swing-trading is not the solution.

1 comment:

dh12 said...

Very difficult to time the market especially in the short term. Buying cheap on the technicals and holding for a long long time is the way to go