Swing trading is a basic form of short-term market speculation in which positions are held for more than one day. This may be used for fx, futures, bonds, options, ETFs, and cryptocurrency trading. This page will take an in-depth look at the nature of swing trading, with some tactics and advice for top strategies. It will also discuss the advantages and risks of swing trading, along with indicators and regular charts, before wrapping up with some key take-off points.
What is Swing Trading?
The straightforward concept of beginner swing trading is that users attempt to catch profits over the night or the course of several weeks by holding an instrument. As training guides illustrate, the aim is to capitalize on a greater price change than feasible in an intraday time period. However since you’re pursuing a wider price range and change, you’ll need measured position sizing to reduce downside risk.
For this reason, individuals are calling for technical analysis to identify short-term price momentum instruments. It means following the values and concepts of price behavior and trends.
Setups and methods of swing trading are usually conducted by individuals rather than large organizations. This is because large companies typically deal in volumes that are too large to quickly reach and leave securities. Nevertheless, individual traders can capitalize on short-term market swings, as examples may prove.
Swing Trading Benefits
As forums and blogs will easily show, swing trading provides many advantages, including:
- Application – Swing trade in a long list of markets and instruments can be successful. You may report on the new altcoins, for example, such as a bitcoin (BTC), ethereum (ETH), and litecoin (LTC). Alternatively, standard options allow you to stick to swing trading.
- Resources – Online tools galore help you become one of the success stories. Ebooks, video training courses, PDFs, applications, instructional classes, and a whole host of websites are available. Anyone can have ideas for fx tactics, general trading plans and top pattern-identification tips. Alternatively join the chat Discord to engage in an active swing trading group.
- Tools – You can swing trade on any number of sites, from Robinhood to MetaTrader, using candlesticks and other techniques. There is also the possibility of using automated bots and expert consultant apps (EAs). Used correctly, these will allow you to execute much more swing trades than you could ever manually do.
- Mindset – As success stories show, if you have the qualities necessary for day-to-day trade to be successful, you will well have the ones needed for swinging trade. Are you patient for example? Would you mind losses from big stops? Are you content to do fewer trades while being meticulous about the few setups that you’re doing? If indeed, the characteristics and discipline of a good swing trader can already be yours.
There are some drawbacks to bear in mind, including:
- Market risk – Rule 101 – Certainly you can lose money. Though some have made it look simple, your income will feel any mistakes. And unfortunately, as is the essence of business trading, lessons are still taught only the hard way. Additionally, margin trading and using leverage could see you lose more than your initial investment.
- Time – Swing trading isn’t one of the trading forms where you can enter your position and then check it up a week later. It is live trading which needs consistent monitoring and strategies that work. It could be difficult to juggle swing trading with a full-time job.
- Taxes – Swing trade does not automatically exclude you from this. In reality, you could get caught up in pattern day trader laws in the States, for example. So verify that first you can meet commitments in your financial system.
- Risk management – If you are investing in penny stocks or using an algorithm service, it could cost you a lot if you fail to execute an appropriate risk and money management strategy. As successful trader Harry Lite said, he has been continuously seeing instances of other people in his financial career whom he ha saw being ruined by a lack of regard for risk. If you don’t take a good look, the risk will take you out.
- Psychology – Do you like a fast-moving, competitive market environment? Were you frustrated with a need to know instantly whether you are right or wrong? If so, you do not have the attitude needed to become a millionaire and swing-trading master.
Those are by no means the swing trading rules packages. You may also use the above as a checklist to see if your millions of dreams already look limited.
Day Trading vs Swing Trading
The biggest difference is the time you hold a position. Day trading, as the name implies, means closing positions before the business day is over. However, as chart patterns indicate when you swing trade, you take on the possibility of overnight gaps appearing up or down against your position. As a result, you frequently take a smaller position size when swing trading than if you were day trading, because intraday traders often use leverage to take larger sizes of position.
This being said, swing traders can capitalize on an overnight margin of up to 50 percent. But as classes and advice from pro traders can point out, swinging margin trading can be incredibly risky, particularly when there are margin calls.
Thus, swing trading or day trading isn’t so much about what you want to invest in, whether it’s commodities like oil futures or Cac 40 stocks. Instead it’s just the time. So while day traders look at 4 hourly and daily charts, the swing trader would be more concerned with multi-day charts and trends of the candlesticks. Some of the more common ones include:
- Moving average crossovers
- Head and shoulders patterns
- Cup-and-handle patterns
- Double bottoms
- Shooting stars
The use of stop-loss strategies is one final day difference in swing trading versus day trading and scalping. Stop-losses are usually wider with swing trading to match the proportionate benefit goal.
What Stocks to Swing Trade
One of the first things you’ll learn from training videos, podcasts and user guides is that you need the right securities to choose from. For instance, in terms of stocks, large-cap inventories always have the volume and volatility rates you need. Typically, these stocks swing between higher elevations and extreme lows. That means you can move in one direction for a couple of days and then turn to the opposite side of the trade when you see reversal patterns.
One of the fundamentals of swing strategy is making the best stock choices. Choosing a platform with powerful screeners and scanners is a useful tip to get you to that goal. When you are speculating on the wrong low-priced stocks, there is absolutely no point getting in having the best approach.
The Right Market
In two opposites of the market, the bear market climate or the raging bull market, swing trading can be particularly difficult. There you can note that even extremely active stocks do not show the same up-and-down oscillations as when indexes are steady for weeks on the end.
Alternatively, you’ll note that momentum in a bear or bull market would usually push stocks in one direction for a considerable time. This will indicate the best entry point and approach is based on the trend in the longer term.
Essentially instead, you have the perfect swing-trading climate when the markets are not going anywhere. For eg, if you wanted to trade on the Nasdaq, you’d like the index to rise for a few days, fall for a few days and then repeat the trend. So even if your stock may be below initial rates after a few months, you have had several opportunities to capitalize on short-term fluctuations.
Using the Exponential Moving Average
A swing trading academy will inform about warnings, gaps, pivot points and technical indicators. So maybe the exponential moving average (EMA) is one of the key concepts that they can walk you through.
This is essentially a modification of the standard moving average, but the emphasis on the latest data points is increased. Used correctly, this will help you recognize trend signs as well as points of entry and exit much better than a simple moving average would. Essentially, the EMA hybrid can be used to build the entry and exit plan.
An EMA program is simple, it can provide techniques for beginners in swing trading. The nine-, 13- and 50-period EMAs can be used. After starting below, the bullish crossover will appear at the point where the price breaches above the moving averages.
It tells you a turnaround and maybe an uptrend is about to come into action. And then if your EMA nine-period reaches the EMA 13-period, this will alert you to a long entry. This being said, the 13-period EMA must be above, or potentially crossed above, the 50-period EMA.
On the other side, if the price of an asset falls below the EMAs, a bearish convergence occurs. It shows you there might be a potential pattern reversal. You can then use that to calculate your exit from a long position.
And if the EMA’s 9-period crosses the EMA’s 13-period, that will let you know about a short entry or the need to exit a long position. Having said that, the 13-period EMA has to be below or cross below the 50-period EMA.
Using the EMA in a right way, with the right time frames and secure crosshairs, you will have all the fundamentals of a successful swing technique.
Psychology of Swing Trading
It’s true that you can download a whole host of podcasts, audiobooks and PDFs that will show you examples of swing trading, rules to obey and charts to create for Heiken-Ashi. What they don’t always tell you, though, is how to respond emotionally when your swing trading strategy doesn’t work.
With that said, there are 3 suggestions you should consider:
- Have a strategy and stick to it – Highs and lows will be there, that’s the very essence of buying and selling in the markets. Let the numbers decide the ups and downs though, don’t let your feelings get in the way. Deciding when to sell will easily turn into an emotional decision when you get your whole weeks yields risked. So devise a plan, and then faithfully stick to it.
- Fighting terror by reducing risk – The desire for risk is different for all. So, consider the correct risk parameters. You would want to start with not losing more than 2 percent of your account size on a single trade, for example. No coach will teach that to you. You can only know where your personal boundaries lie through hours of practice.
- Think long-term – So many traders are obsessed with the last or impending exchange. Don’t worry if it’s gold futures that you’ve lost on. Instead, think about your long-term percentage and calculator. As Bruce Kovner rightly points out, you can’t compete if you personalize losses.
Swing Trading Top Tips
Some of the best forex books leave out some of swing trading’s key tricks and secrets including:
- Using the News – Markets are shifting continuously in response to news events. Many outlets, such as Yahoo Finance and CNBC, can use volume, price action and weekly charts to provide market analysis and commentary. The news could thus help you highlight possible options and dividend stocks, for example, to keep an eye on. It could motivate you to schedule your entries and exits, too.
- Never stop learning – As Paul Tudor Jones famously said, the key to being efficient from a trading perspective is to have an indefatigable and undying and unquenchable appetite for information and knowledge. Hepas of information is available to help you develop effective crypto and forex strategies. For example, video tutorials will help you learn Gann techniques and how to start using weekly deep in the money options. They can even run you through indicators for your MT4 platform and daily stock alerts set ups.
- Find the right broker & exchange – Everybody has different needs and goals, so while on Gdax or Binance one crypto swing trader may be better off, a highly active forex swing trader might want to consider Dailyfx. Also remember they are a place to find quotes and deal with security exchange. They will help you create a watchlist, portfolio and more.
- Keep a journal – It can prove useful to hold an Excel file. Just note down location, date, size of the position and a reason for entry and exit points. It could help you see why, for example, your currency pair breakouts strategy doesn’t fit on weekly charts.
How Much Money Can You Make?
The returns on swing trade depend entirely on the trader. Take leveraged ETFs vs stocks, for example, some will deliver lucrative returns with the former, while miserably failing with the latter, given the fact that both trades are relative close.
It’ll also rely partly on the approach you take. Some people are going to support MACD metrics while others are using NMA. Just as others would swear by using candlestick charting with levels of resistance and with support, others will trade on the news.
The trick is to find a plan that fits to your timetable.
While different from day trading, feedback and results indicate swing trading could be a neat method to start with for beginners. This is because intraday trading will prove too hectic in dozens of securities. Whereas swing traders will see their returns within a few days, retaining high motivation rates. At the same time, swing trading is quick enough to avoid disruption versus long-term trading.
What’s more, the specifications are low. You need a brokerage account and some cash, but after that you can find online gurus to help you try and return profits. In addition, swing trading can be successful on a large number of markets.
Yet while it might be fairly easy to learn how to start swing trading as a part-time or full-time job, the capital is at risk. Caution therefore must be taken at all times.