What is Swing Trading in Stocks?

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Swing trading is a medium-term trading style used by traders who like to profit from upswings and downswings in stock prices. With swing trading, positions typically last between two to six days, though some swing traders hold swing positions for a period that lasts as long as two weeks.

This lesson will briefly explain how the swing trading strategy works and help you decide if this is the best trading strategy for you. Let’s start!

How Does Swing Trading Work?

Swing trading is a strategy focusing on changing stock price action trends over short-medium timeframes. This trading strategy stands between two other popular trading styles: day trading and position trading. It is ideal for those who cannot monitor their charts throughout the day but have a couple of hours to spare every now and then to analyze the market.

This trading style, also known as the momentum trading strategy, requires patience as swing trades are usually held for a few days, from a minimum of two days to several weeks. It’s the ‘swing’ in the asset’s price, from one price value to another, that gives the trading method its name. Therefore, most swing traders focus on volatile stocks with high trading volumes to utilize this short-term trading strategy. 

The key is to keep an eye on the movement of different stock prices so that a trader can get in at a level that’s appropriate for them and get out a short time later with a profit. Typically, swing traders choose the most actively traded stocks and utilize fundamental analysis to evaluate the company’s intrinsic value and find differences between a stock’s fair value and its trading price in the market.

However, many swing traders also find swing trading opportunities using repetitive chart patterns and technical analysis indicators. By using technical analysis indicators like moving averages, support and resistance levels, and other momentum indicators – swing traders can find entry and exit points. 

This way or the other – when you swing trade stocks, you must learn how to use risk management to improve your trading performance.

Why Might Swing Trading Be The Best Trading Strategy for You?

Unlike scalping and day trading strategies, swing trading involves taking longer trades of swing trading stocks. Therefore, the potential rewards are higher, but at the same time, the risk per trade is also higher. This is because swing traders (unlike day traders) leave their positions open for several days, exposing them to overnight and weekend risk when the price can unexpectedly fluctuate in either direction.

So, is swing trading risky? Yes, it is. If you are not using risk management tools, then you can lose money by making just one mistake. Swing trading is all about capturing a swing in the market and taking calculated risks.

Remember, if you want to be a successful swing trader, you need to develop an effective risk management plan. As investment advice, do not start swing trade before you know how to manage your risk effectively. If necessary, before you start swing trading, read one of the best swing trading books, or watch online videos about trading risk management.

But while the strategy has its drawbacks, swing trading could also be your solution to make an extra income without getting too involved with the stressful environment of the financial market (as opposed to day and scalp trading).

Typically, swing trading is best suited for those who cannot monitor the markets several hours a day and want to make an additional income from trading. For instance, you can certainly combine swing trading strategies with a full-time job, which is impossible with day and scalping strategies.

So, let’s say you enter a swing trade. You do not have to monitor your trade every second. Instead, you need to place a stop loss, a take profit order, and that’s it. Then, you can do your things and check your account in the next hour, day, or week. That’s, in a nutshell, the most notable advantage of swing trading.

That said, if you still have doubts about becoming a swing trader, let’s quickly explore the pros and cons of this trading technique.

Swing Trading Strategy – Pros and Cons

You might be a stock swing trader if

  • You are patient and like holding your trades for a couple of days.
  • You take your time deciding what trades to take.
  • You have a full-time job but enjoy trading on the side.

You might not be a stock swing trader if

  • You are impatient and want to know if you are right or wrong on the same day.
  • You can’t spend a couple of hours every day analyzing the markets.
  • You like fast-paced trading.

The Bottom Line

The bottom line is that swing trading is an excellent trading method for many people who want to enter the trading arena without putting in too much effort and time analyzing and monitoring stocks.

In terms of the technical process, you can literally open a live trading account, spend a few hours a week analyzing the stock market, and swing trade. That is why this trading strategy is the most effective way for part-time traders to trade stocks. 

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