How to Swing Trade

What is Swing Trading?

What lies at the heart of this trading style and what are the advantages or disadvantages of it in relation to other trading styles? In today’s stock market, swing trading is considered trendy, but it is not as young as you may think – the first references to it go back to the 50s of the last century, when Swing trading was described by George Douglas Taylor in his book “The Taylor Trading Technique” as a strategy to profit from 3-5 natural daily market cycles. Each trading approach has its own characteristics, and we will cover in this post the particulars of swing trading, so that you as a trader can get a better idea about how to use it for your own benefit.

Swing trading

The term “swing” means a movement in alternate directions or in a particular direction. In the jargon of traders, swing is viewed as the amount of time during which the position remains open. Swing trading is often misinterpreted as a specific type of trading, which is based on fundamental analysis, where the positions are kept open for more than one day. In general, this is so because most of the fundamental news has an impact on the market, and you would expect that fundamental traders practice swing trading. But this is only part of the truth. In fact, swing trading is a far more interesting and complex process.

It would be more appropriate to identify swing trading as a phenomenon that lies between day-trading and medium-term trading, which takes as its basis the cyclic dynamics of prices. In the age of global market liquidity, the swing trader can find wonderful trading opportunities in different time-frames. Also, swing trading is not a trading strategy, as some believe. It’s just a specific style of trading stocks, which is different from day-trading and position trading.

The basic principle of swing trading

The basic principle of swing trading is the following: as a trader, you are trading stocks in the direction of the long-term trend, but only after you note a wave of trades against this trend. Basically, your goal is to reap the benefits from an uptrend when the sentiment is somewhat bearish for a while, and vice-versa.

The trader has to identify the support and resistance levels, which represent the borders of the trend. When the stock price approaches the border of ​​resistance or support, the trader should open a position. The short position is considered when the price approaches the resistance and the long position is opened when the price gets to the support level.

Here is how it looks like on the chart:

As you can see, we have a general uptrend, and whenever the price approaches the support levels, which means when it shows a temporary downward direction, this is a good time to buy.

Advantages and disadvantages of trading swing

One of the main advantages of swing trading is that the trader has the opportunity to profit in both directions. However, it is also important to exactly determine the right trend and know when to enter the market.

Another important advantage is the fact that this style is not associated with excessive energy spending and emotional stress, and in contrast to the scalping and intraday strategies, this style can bring significant benefits.

One of the disadvantages of swing trading is that the trade is conducted on larger time-frames in contrast to trading intra-day, so the trader would need a large initial deposit, which may be a concern especially for beginners.

More facts to note and the bottom line

A serious miscalculation that lots of swing traders encounter is correctly figuring out reasonable patterns that point to buying, but doing this at the very wrong moment.

A lot of traders don’t get that it is completely wrong to buy stocks when the general trend is going downward.

They just notice a bullish pattern and consider the quotation has to be an excellent opportunity for a long position. However, the fact is that bullish patterns can be profitable exclusively in bullish markets!

If you don’t consider the bullish trend or the bull market, then it makes no sense to look for bullish chart patterns. Ascendant triangles, cup and handles, bull flags, flat bases – all of these patterns may surely fail if you close the eyes to the broad market.

Because of the abovementioned mistake, many traders get very disappointed in bearish markets since they are opening long positions on best bullish patterns, but at the very wrong time.

In conclusion, we have to note that swing trading is a great trading approach, but one should stick to the general principles. There are many swing trading strategies and many ways to succeed as a swing trader, but they all require a fair share of patience, discipline and time to study them.

Be a Better Stock Trader, Starting Today

Get the expert insights, tips and strategies you need to optimize your trading skills and profiles

Start Now!