What's Swing Trading? The Definitive Guide

Before approaching the stock market, each investor has specific goals in mind. Some people look at the big picture and invest for the long term, which means they are not eager to get a profit immediately and are interested in building wealth over time. Others need cash instantly and trade for short-term gains. Of course, some investors are deep into the market and do both.

There are a lot of trading strategies that newcomers can use. However, there is a tactic that has proven quite effective for newcomers, which is swing trading. But what’s swing trading? 

Swing trading is slower than day trading, which moves extremely fast. This strategy can help you understand the market better and push you over the edge to finally dip your toe into stocks and analyze every technical aspect.

If you are a curious trader looking to learn more about swing trading, keep reading our article! 

What’s Swing Trading? 

Regarding stocks, each type of trading brings some advantages and disadvantages, so you need to assess your personal goals first. We established that swing trading is great for newcomers who try to profit from the market swings in one day or a few weeks. So, what’s swing trading?

Swing trading is a strategy that allows investors to purchase and hold assets to make a profit from the anticipated price moves. With swing trading, investors try to capture the medium-term gains in stock by using technical analysis to look for many trading opportunities.

In addition to analyzing the patterns and price trends, swing traders also use fundamental analysis to help them get a better understanding of the current shares.

The technical analysis brings leverage to swing traders because the information can help them determine the buy and sell points.

It all may sound easy-cheesy, but with swing trading, there is quite a big risk involved. For instance, the security price will change if the market closes.

What are traders hoping to achieve with swing trading? 

The main mission of swing traders is to capture a small portion of any “swing” or price movement in the market. Because the traders focus more on the short-term and are willing to cut losses quickly, the profit may be smaller.

To remind you, constantly acquiring small profits can add up to a large annual return.

How does swing trading work? 

Swing trading falls in the category of active trading, and traders look for short-term opportunities where they can use many forms of technical analysis.

The trader who likes to leverage from the market's swings (ups and downs) analyzes patterns to capitalize on the price movements. Swing traders also focus on momentum stock trends and often keep a close eye on large-cap stocks because they are the most heavily traded.

Large stocks have high trading volumes, so investors must understand how the market perceives the company and its security swings before entering the market. Investors use technical analysis for a sneak peek at the market’s price movements. We will explain this term a little further in our article.

In one trading session, swing traders hold one long or short position. Typically, the position is kept for a maximum of a few weeks. One month is a general time frame for swing trading because every successful trader is only interested in catching a small chunk of the price movement.

Swing trading methods 

Swing traders use multiple methodologies to take advantage of the market swings. Some of them like to use momentum and make a trade as soon as the market confirms a change of direction.

Other traders like to enter the market when the stocks are quite low and make a profit in the long run. There is no proper method, and both can lead to gain if implemented with knowledge, skill, patience, and discipline over the entire time.

What Are the Risks of Swing Trading? 

Just like every trading style, swing trading does carry a big risk. Despite being the most suitable option for newcomers and introducing them to the market, swing trading has many risks.

The most common risk of swing trading is the gap, which is the time when the market is closed, yet the security prices rise and fall based on news and events. The gap can occur during the night or weekend.

Swing trading can be risky for beginners who like to make a profit quickly, but the tactic requires constant monitoring and smart thinking without becoming greedy.

The shock of any unpredicted news will affect the opening price. The bottom line is the longer the market is closed, the bigger the risk will be.

Another risk investors take with swing trading is the abrupt changes in the market’s direction. This means that every investor that focuses on short-term holding periods can miss out on long-term trends.

Why Do Swing Traders Use Technical Analysis? 

Technical analysis studies the patterns and statistical trends on the stock chart. The reason swing traders use the analysis is that it gives them an insight into the price’s movement on the market and allows them to spot trading opportunities.

Besides being risky, swing trading can be intimidating because it requires much knowledge before even stepping foot in the market. But, if it were easy, everybody would do it and double their college fund overnight.

Technical analysis allows traders to know the trading activity from the past and the price movements, indicating a better prediction of the future.

Swing traders rely on technical indicators and charts to gain insight into the market’s psychology before investing. They analyze multi-day patterns to see the direction in which the stock price is headed.

Swing Trading - Pros and Cons 

What’s swing trading, and what are the advantages and disadvantages of this strategy? 

Swing traders like to take advantage of the market and make a profit in one day or within a few weeks. Despite being profitable, swing training can provide a great perspective to newcomers about the short-term and long-term movement of the market.

However, there is a catch. If you choose swing trading as your strategy, you must keep a close eye on the trades and quickly manage them. If you close your eyes for a second, you may miss out on a profit.

Pros 

Cons 

What Are the Best Swing Trading Strategies? 

Newcomers and traders who decide on swing trading and focus on short-term profit use several tactics. The most common strategies are:

If you need help picking a strategy or assistance during options trading, you can use FoolProof. This company helps you stay on the right side of the market for only $97 a month.

Conclusion

What’s swing trading, and how is it different from day trading? Swing trading is great for new traders to dip their toes into the market, and the tactic does not require the same level of active attention as day trading.

Swing traders usually start with $5K or $10K. The rule is the investor should never be afraid to lose this money because even with risk management from the get-go, there is always a possibility for downfall.