WHAT IS SWING TRADING?
Swing trading is one of the most popular forms of actively trading the markets; particularly amongst traders using technical analysis. Unlike the intraday trades placed when you Day Trade, Swing Trading is a trading style that tries to make short- to medium-term gains in a given asset – be that stocks/shares, commodities, indices, crypto – literally anything you want to trade with. Some traders will seek out the most volatile stocks and currencies, with wildly varying price movement, whilst others plump for more lazily moving assets.
No matter what market you choose to place your trades on, this isn’t the smash and grab style of a day trader; you’ll need to exercise some patience as this trade will take anywhere from a few days to several weeks to complete. But it’s not just your patience that will be tested; your confidence in a strategy, your relationship with your day-to-day emotional changes and, ultimately, your nerve will all potentially be put through the medium-term meatgrinder too.
The fundamental objective of Swing Trading is to capture, you guessed it, the swings in price movement for profit. Swing trading seeks to take advantage of medium-term swings in the market lasting days to weeks. It’s important to note that this is also in contrast to Position Trading that seeks to benefit from even longer term swings (lasting for months to years).
HOW DOES SWING TRADING WORK?
It is universally known that the price of financial assets moves in waves, with upward and downward swings (Figure 1). Swing trading seeks to capture these price swings by entering a trade at the start of the swing and exiting the trade before the swing ends, reverses and begins a new swing in the opposite direction. These swings are best captured on the daily time frame.
From the foregoing, it’s pretty clear that the swing trader’s principal challenge lies in being able to identify both the beginning and the end of a swing to correctly time the entry and exit of their trades. It follows then that swing trading relies heavily on technical analysis to correctly identify these starts and finishes of price swings to provide actionable intelligence for the swing trader. Enter into a swing too late and you’ll quickly see yourself stopped out whereas, if you leave too early, you’ll be missing out on the rewards of your accurate prediction; so getting these two aspects right really will make-or-break your trade. This is done through chart analysis of price patterns, allowing you to measure when you should enter into and when your should leave any given swing to reliably profit from the movement.
Here at Trading College, our students (and coaches) have a whole suite of technical indicators available to them via our Pro-Trading System; this software signals to them the start and end of swings quite accurately. Our much-acclaimed Storyteller indicator is worth mentioning because, as the name suggests, it literally tells the story of these market swings; outlining in clear detail the start and end of the move, where to enter the trade, how long to hold it for and the target of where to exit.
Figure 1: Price chart with market swings
WHAT ARE THE ADVANTAGES OF SWING TRADING?
There are several reasons why swing trading has been so widely embraced by many astute and experienced traders.
Since trades are held for a reasonable length of time, this allows market trends to fully evolve and mature, thereby yielding bigger and better returns per trade when compared to day trading. Annual returns vary but profit ratios anywhere between 10% and 50% are not uncommon.
Reasonable Initial Financial Layout:
Your initial financial outlay for this type of trading is not excessive. A starting balance of anything from £2000 to £5000 may be required by some brokers to open a swing trading account.
Less Time Spent In Front Of The Screen:
Owing to the fact that swing trading is done mainly off a daily chart, the swing trader only needs to look at the charts at the end of the trading day, in the evening actually, when the daily candle has closed and confirmed. Accordingly, they require little maintenance. You don’t have to get up early for the market’s open, you can enjoy a lie-in and leisurely start your day. Fifteen to thirty minutes at the end of the trading day is usually all that a swing trader needs to review the day’s trading activity and make any required modifications to existing open positions.
You Can Easily Swing Trade Whilst Working A Day Job:
Since swing trades require such little ongoing maintenance, they are ideal for people who have full-time jobs but want to trade on the side for an additional income stream. Continuing to have an income generated by your day job means that you’re not going to be under pressure to take unnecessary risks. Swing trading is the ideal side-hustle for anyone looking to trade part-time or when they are still learning and transitioning to trade as their principal income.
A Dream For Stay-At-Home Mums & Dads:
Let’s face it, raising a family is no mean feat. Looking after the kids, carefully coordinating school runs – you name it. Parenting is a full-time job and then some! The good news is that swing trading, as an evening activity, will only take up 15-30 minutes of your time after you’ve put the kids to bed. How’s that for flexible working? I love being the bearer of glad tidings!
Time For Your Hobbies:
You might be looking at trading to form a supplementary income to your retirement. Who can blame you with interest rates being as low as they are. However, not all lows are bad. The low maintenance nature of swing trading and the minimal time spent in front of your computer screens means that you can get on with enjoying the things that interest you. There’s time in the day to pursue hubbies and, after half an hour’s work, time to enjoy the evening as well (for you night owls).
WHAT ARE THE DRAWBACKS OF SWING TRADING?
Alas, every rose has its thorn. Whilst there’s certainly a lot of Pros to this style of trading, it is not without its disadvantages.
Since your trades are held for more than one day, they are (naturally) subject to overnight price swings due to trading activities in different time zones so this needs to be factored in and monitored.
Overnight Price Gaps:
For the same reasons cited above, price gaps commonly occur when a security’s opening price is significantly different from its last closing price thereby leaving a price gap when the next day’s price candle opens.
Since the typical swing trade has a larger stop loss value compared to the average day trade, a losing trade could lead to a small (but still noticeable) deficit in your trading bank. However, proper risk management and correct position sizing will mitigate this risk.
Patience is a virtue has never been truer than when it comes to swing trading. Quite a bit of patience is required to hold trades for a long enough time to allow the market’s swings to run uninterrupted and come to their logical end.
A swing trader needs to be disciplined enough to resist the urge to tamper with the parameters of an open trade for as long as the swing remains viable. It takes a lot of discipline to control the emotions associated with trading. You need to stay focused, trust the strategy and not exit the trade prematurely or tinker around with it too much. These types of trades require little maintenance or interference, which can be tricky for certain personality types. With swing trading less is most definitely more.
Swing trading is a trading style with lot of attractive advantages and earning potential. It is my own preferred trading style and I’ve personally enjoyed a lot of success with it whilst holding down a separate career in tandem. Learn to do it right and you will bless the day you read this article.
The Importance Of A Trading Education
Identifying swings, patterns, psychology, routine, personality, strategies, software and training are incredibly important for being able to reliably make money from trading. Whether this is your first time taking on the forces of the market or you’ve had limited success and want to improve that potential, we have a course that’s right for you. If trading sounds interesting to you, then please remember to check out Learn To Trade Online; it’s a FREE one-day training course that we regularly hold and covers day trading, swing trading and many of the basic concepts. Are you ready to start your trading education? Good news, registration is now open for our Pro-Trader Programme! Join now and learn how to generate a reliable second income that fits around your professional schedule or even turn trading into your full-time job. Click here for more information.
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