This post is a comprehensive guide on Swing Trading. If you’re looking for an in-depth understanding of what Swing Trading is, how it works, and how it differs from other trading styles, then you’ve come to the right place.
In this article, we’ll break down the components of Swing Trading and provide you with actionable steps to get started.
So, without wasting any time lets dive right into the world of Swing Trading!
What exactly is Swing Trading?
There are many different kinds of trading methods and styles that traders and investors prefer to incorporate into their careers.
If you are the kind of trader who seeks to capture gains from any financial instrument short or medium-term swing trading is your trading style.
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Swing trader’s traders usually last from a few days to a week and sometimes even a few months.
Here are a few important key important facts about this trading style –
- Where day traders trade only last one day, Swing traders take trades that last a few days to some months.
- This trading style involves taking smaller gains in short-term trends and cutting losses quicker.
- It is well suited for traders who have any other Job. Since they don’t need to check how their stock is performing constantly they can easily do their day job.
- The average length of a trade is 5 to 10 days. However, some trades can last months or less than 2 days. It completely depends on your goals and strategy.
- Here Profit goals are more modest, around 5% to 10% in a short period. Furthermore, Losses are also kept small at a maximum of 3% to 4% to maintain a 3-to-1 profit-to-loss ratio.
- Swing trading allows diversification of investments and is different from day trading in terms of holding time frames, overnight risks, leverage options, and time commitment.
So, in short, we can say Swing trading is the perfect way to trade for those who don’t want to be long-term investors or day traders and just want to gain profit from market swings.
In Swing trading, there are 3 major components you have to consider before entering any trade –
- When to Enter a trade – Using technical analysis you first have to identify the best entry point to enter the trade.
- When to Exit a Trade – Just like any other trading method, you must have a planned exit before entering the trade. Fortunately, there are many technical indicators that can help with that. You have to decide the exit point for both in cases of loss and profit.
- How much to Trade – How much money you should invest will depend on how much profit you want to make and how you are willing to lose.
How does Swing trading work?
Swing Trading works by gaining profit from the short to medium-term movement of the market.
Suppose you take a trade in the stock market and purchase a particular stock.
Your goal here should be (in ideal condition) taking 5 to 10% profit in a few days.
First, you have to decide on a good entry and exit point.
Traders have to decide entry points both in case of loss (Stop loss) or in case of profit (Target), once either of them is met you should close that trade.
Almost all of the stock brokers allow you to mark stop loss and target points while you take the trade.
How Swing Trading Differs from Other Trading Styles?
The Major distinction between swing trading and day trading or investing is holding time.
In day trading, you hold a position just for a day, till the market close.
In traditional investing, you take deliveries and hold these instruments with the intention of gaining long-term profit.
But in swing trade, traders hold a trade anywhere between overnight to a few months, till their target meet or stop loss is hit or they just decide to close the trade.
There is no fixed time period for a swing trade. By definition, a trade held for less than a year can be considered a swing trade.
How one Can start with Swing Trading?
If you want to start to swing trading and become a successful trader to generate enough income you must –
- Fundamentals of Technical Analysis – Technical analysis is a must if you want to succeed in trading. Using technical analysis you can easily increase your odds of winning.
- Basics of Swing Trading – You must also learn how to take positions, the charges that you have to pay, and taxation on trading.
- Develop a Trading Strategy – Without a good trading strategy, you can’t go any far in your trading career. Either copy the swing trading strategy of other successful traders or develop your own. You can find lots of these kinds of strategies on YoutTube.
- Learn risk management – Risk management helps you minimize the risk if something goes wrong. There is no holy grail in trading, any strategy no matter how success rate it holds can fail. Risk management helps minimize this risk and helps you maintain your trading capital.
- Familiarize yourself with trading tools – There are many trading tools like Charts, Indicators, and Screeners which help you. Familiarize yourself with these tools.
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So the key takeaways are that swing trading is a popular trading style and if you are looking to capture gains from short-term trends this might be for you.
Swing traders usually focus on Technical analysis, divert their investment, and limit their losses by planning entry and exit points prior to entering any trade.
If you don’t want to time commitment of what day trading needs or the long-term commitment of investing you should consider Swing trading as your main trading style.
A trader who has at least a basic understanding of technical analysis, and stock selection can start taking swing trades right away.
However, keep in mind that just like any other trading style, this one also has its pros and cons. Consider all of them before starting your trading journey using any of the trading styles.