Over the past few months my trading focus has shifted from intraday futures trading to stock swing trading. The reason for the switch is partly because the pace of swing trading suits my personality, and partly because I've put a great deal of time into studying some swing trading setups that appear to produce a more reliable edge than any of the intraday setups I've examined.
The basic premise behind my swing trades is simple: buy deeply oversold stocks, and sell after a bounce. This is a long-only system. I will sometimes hold an inverse ETF as a hedge, but I do not trade stocks on the short side. The average trade duration is about six days. Risk is controlled through diversification, position sizing, and hedging.
There are probably countless ways to identify when a stock is "deeply oversold" and when it's experienced enough of a "bounce" that you should take profits. I've studied at least two setups that appear to do a decent job, but I have no illusions that I've found the optimal entry and exit criteria. I'll share my setups along the way but there is nothing magical about these particular setups and I imagine that I will tweak them over time.
The main thing to recognize is the principle that makes this system work, which boils down to short covering. Deeply oversold stocks have a tendency to retrace a good chunk of their losses once the downward momentum fades, as shorts lock in their profits and stops get triggered on the way up. This system represents my attempt to ride along with the short-covering rally.
I'm not sure how many other stock traders frequent this site as most of the focus here is on futures, but I hope someone will find something of value here.