It is a trade that is short a low, but is willing to take a loss in order to make a short profit. That means the buyer doesn’t want the short side exposed, but wants to get the short side to trade as low as possible in order to protect their trade, while taking a loss. A swing low may seem like a logical trade, but it doesn’t mean it is the right one. The right trade is either a swing lower, or a swing higher.
Swings low trade logic is easy to explain, but often harder to apply. Let us take an example. Lets say we want to make a trade in high-quality bitcoins. We do not know where to find them yet, but have a plan: Let our broker make a list of good places to buy bitcoins. We pick BitcoinX, which has a very low trading price. Let the broker list the best places to buy BTC. We buy on that list, and then we wait for the market to get moving. The first sign of movement comes from BTCX rising to over $2000. The next day, we see BTCX dropping again. The next day, we see BTCX rising again. Our broker is working hard, and we still feel the urge to buy, but we know that it is time for it to come down.
The logic, of course, is there: we want to make the most profit by shorting BTCX as low as possible. We know BTCX is short a good percentage of its total shares, and we want to make our shares worthless. At this point in the trade logic, my broker is likely to try to convince me to sell for the same price that BTCX was selling for, by saying that it is now overvalued, and that it is worth a lot less. However, at least at this point our broker is probably not trying to get us to short. What we need to understand is our broker is trying to make the most profit by shorting BitcoinX for the low price. And he doesn’t want us to let go of our short. For our broker, shorting BitcoinX is a smart move. His strategy will probably work to his advantage, but for us, that means we have to find a higher value, that is not being traded and that we are in control of.
Let us think about this more. We know how easy is possible to make a trade that will be short when the market is moving, but we also know how hard is possible