Swing trading is a fundamental type of short-term speculation in the market where positions are held for more than a single day. It can be used to trade in forex, futures, stocks, options, ETFs and cryptocurrency. This page provides an in-depth overview of the meaning of swing trading, plus some top strategy techniques and tips. The benefits and dangers of swing trading will also be explored, along with indicators and daily charts, before packing in some key takeaways.

 

 

What is Swing Trading?

The simple definition of swing trading for beginners is that users seek to obtain profits by holding an instrument anywhere from overnight to several weeks. As training guides highlight, the goal is to capitalize on a larger price move than is possible within an intra-day time frame. But because you are following a larger price range and move, you need to calculate the size of the position so that you can reduce the downside risk.

To do this, individuals engage in technical analysis to identify instruments with short-term price momentum. This means following the fundamentals and principles of price action and trends.

Setups and methods for swing trading are usually undertaken by individuals rather than large institutions. This is because large firms usually trade in large volumes to enter and exit securities quickly. However, as examples will show, individual traders can profit from short-term price fluctuations.

Swing Trading Advantages

As forums and blogs will quickly point out, there are several advantages to swing trading, including:

  • Application – Swing trading can be effective in a long list of markets and instruments. For example, you can speculate on the latest altcoins, such as a bitcoin (BTC), ethereum (ETH) and litecoin (LTC). Alternatively, you can stick to swing trading with standard options.
  • Resources – There are a wealth of online resources to help you become one of the success stories. You have e-books, video training courses, PDFs, apps, tutorial classes and a whole host of websites. Everyone can offer ideas for forex strategies, general trading plans and best tips for identifying patterns. Also join the Discord chat to participate in an active group for swing trading.
  • Tools – You can swing trade with candlesticks and other techniques on any number of platforms, from Robinhood to MetaTrader. There is also the option to employ automated bots and expert advisor software. If used correctly, you can perform far more swing trading than you ever could by hand.
  • Mindset – As success stories show, if you have the qualities needed to day trade effectively, you can have those needed to trade. For example, are you patient? Do you mind having big stop losses? Are you happy to take fewer trades while being careful with the few settings you do? If so, you may have all the qualities and discipline of a successful swing trader.

risks

Before you quit your job and start trading money, there are some downsides, including:

  • Market Risk – Rule 101 – you can definitely lose money. While some may make it look easy, you will experience mistakes where they are the worst, your income. And unfortunately, as is the nature of market speculation, lessons are often only learned the hard way. Additionally, trading on margin and using leverage can see you lose more than your initial investment.
  • Time – swing trading is not one of those types of trades where you can enter your position and only check it a week or so later. This is live trading and the strategies that work require continuous monitoring. This means that juggling swing trading with a full-time job can be challenging.
  • Taxes – Swing trading does not necessarily exempt you from taxes. In the United States, for example, you can get caught up in day trader laws. So make sure you can meet any obligations in your financial system first.
  • Risk Management – whether you are interested in penny stocks or using an algorithm service, your failure to implement an effective risk and money management strategy can cost you dearly. As successful trader Harry Lite said: ‘Throughout my financial career I have constantly witnessed other people I knew being ruined by a failure to respect risk. If you don’t look at risks, it will take you. ‘
  • Psychology – Do you like a dynamic, fast moving trading environment? Are you impatient with the need to know immediately whether you are right or wrong? If so, you may not have the mindset to become a millionaire and master of swing trading.

These are by no means the set rules for swing trading. However, you can use the above as a checklist to see if your dreams of millions seem limited.

Day Trading vs Swing Trading

The main difference is the duration of a post. Day trading, as the name suggests, means closing your positions before the end of the market day. However, as chart patterns will show when you trade, you run the risk of overnight gaps up or down against your position. As a result, you often take a smaller position than when day trading, as intraday traders often use leverage to take larger positions.

With that said, swing traders can take advantage of an overnight margin of up to 50%. But as classes and advice from veteran traders point out, swing trading on margin can be seriously risky, especially if margin calls occur.

So swing trading or day trading isn’t so much about what you want to trade, whether it’s commodities like oil futures or shares of the Cac 40. Instead, it’s simply the time. While day traders look at 4-hourly and daily charts, the swing trader will be more concerned with multi-day charts and candlestick patterns. Some of the most popular include:

  • Moving average crossovers
  • Pattern of head and shoulders
  • Head and Handle Patterns
  • Double bottles
  • Shooting stars
  • triangles
  • flags

The final day difference in swing trading versus scalping and day trading is the use of stop-loss strategies. With swing trading, stop losses are usually larger to equal the proportional profit objective.

 

 

What stocks to Swing Trade

One of the first things you will learn from training videos, podcasts and user manuals is that you need to choose the right securities. When it comes to stocks, the large-cap stocks often have the volume and volatility you need. These stocks will usually swing between higher highs and severe lows. This means that you can swing in one direction for a few days and then when you see reversal patterns, you can swing to the opposite side of the trade.

Finding the right stock options is one of the basics of a swing strategy. A useful tip to help you with this is to choose a platform with effective screens and scanners. The best strategy can simply be used if you are speculating on the wrong stocks with a low price.

The real market

Swing trading can be especially challenging in the two extreme markets, the bear market environment or raging bull market. Here you will find that even very active stocks do not have the same up-and-down swing as the indices are stable for several weeks.

Instead, in a bear market or bull market, you will see that momentum will usually carry stocks in a single direction for a significant period of time. This can confirm that the best entry point and strategy is based on the longer term trend.

Essentially, when the markets are going nowhere, you have the ideal environment for swing trading. For example, if you were to trade the Nasdaq, you would want the index to rise for a few days, fall for a few days, and then repeat the pattern. So, even though your stock may be at initial levels after a few months, you’ve had plenty of opportunities to capitalize on short-term fluctuations.

Use the exponential moving average

A swing trading academy guides you through alerts, gaps, pivots and technical indicators. But perhaps the exponential moving average (EMA) is one of the most important principles they will guide you through.

It is simply a variation of the simple moving average, but with a greater focus on the latest data points. If used correctly, it can help you identify trend signals as well as entry and exit points much faster than a simple moving average can. Essentially, you can use the EMA crossover to set up your entry and exit strategy.

application

An EMA system is simple and can trade swing trading strategies for beginners. You can use the nine, 13 and 50 period EMAs. Your bullish crossover will appear at the point where the price breaks above the moving averages after starting below.

This tells you a reversal and an upturn may be on the cards. If your nine-period EMA then crosses the 13-period EMA, it alerts you to a long entry. With that said, the 13-period EMA should be above the 50-period EMA or actually be above it.

On the other hand, a bearish switch occurs if the price of an asset falls below the EMAs. This tells you that there could be a possible reversal of a trend. You can then use this to time your exit from a long position.

So if the nine-period EMA crosses the 13-period EMA, it alerts you to a short entry or the need to exit a long position. With that said, the 13-period EMA must be below the 50-period EMA or be below the crossover.

Use the EMA correctly, with the right timeframes and the right security in your crosses, and you have all the fundamentals of an effective swing strategy.

Psychology of Swing Trading

It is true that you can download a number of podcasts, audiobooks and PDFs that will give examples of swing trading, rules to follow and Heiken-Ashi charts to set up. However, what they don’t often tell you is how to mentally react when your swing trading strategy doesn’t work.

With that said, consider the following three tips:

  1. Have a plan and stick to it – there are highs and lows, that’s the nature of buying and selling in the markets. Let math dictate the ups and downs though, don’t let your emotions get in the way. Deciding when to sell can quickly become an emotional decision when you have your entire week’s returns on the line. So set up a strategy and then stick to it religiously.
  2. Combat fear by reducing risk – everyone’s risk for appetite is different. So find risk parameters that fit. For example, you want to start by risking no more than 2% of your account size on a single trade. This is something no mentor can teach you. Only through hours of practice will you learn where your personal limits are.
  3. Think about the long term – too many traders obsess over the last trade or the next. Don’t worry if you only lost on gold futures. Instead, think about your profit percentage and calculator in the long run. As Bruce Kovner aptly pointed out, “If you personalize losses, you can’t trade.”

Swing Trading Top Tips

Even some of the best forex books leave some of the best tips and secrets of swing trading, including:

  • Use the news – Markets constantly move in response to news events. Many resources, such as Yahoo Finance and CNBC, will provide market analysis and commentary, using volume, price action, and weekly charts. If used correctly, the news can help you bring up potential options and dividend stocks to keep an eye on, for example. It can also help you plan your entries and exits.
  • Never stop learning – as Paul Tudor Jones famously said: ‘The secret to being successful from a trading perspective is to have an inexhaustible and a ceaseless and unquenchable thirst for information and knowledge.’ There is a wealth of information available to help you develop effective cryptocurrency and forex strategies. For example, video tutorials can help you learn Gann techniques and how to start using weekly deep in the money options. They can also guide you through indicators for your MT4 platform and setting up daily stock alerts.
  • Find the right broker and exchange – everyone has different needs and priorities, so while one crypto trader might be best on Gdax or Binance, a very active forex swing trader might consider Dailyfx. Note that it is also more than a place to exchange quotes and securities. It can help you build a diverse watch list, portfolio and so much more.
  • Keep a journal – keeping an Excel journal can be invaluable. Note the price, date, position size and a reason for entries and exits. This can help you see why your plan for currency pairs is not working on weekly charts, for example.

How much money can you earn?

Returns for swing trading depend entirely on the trader. Take leveraged ETFs vs. stocks for example, some will deliver generous returns with the former while not failing with the latter, even though both trades are relatively the same.

It will also partly depend on the approach you use. Some individuals will price MACD indicators, while others use an NMA system. Just as some will swear by using charts with candlesticks with support and resistance, while some will trade on the news.

The key is to find a strategy that works for you and around your schedule. Consult our strategy page to explain the details on formulating a trading plan.

Final thoughts

Although different from day trading, reviews and results seem to be a weaker system for beginners to start with. This is because the intraday trading in dozens of securities can be too hectic. While swing traders will see their returns within a few days, the motivation levels will be kept high. At the same time as opposed to long-term trading, swing trading is short enough to avoid distraction.

Moreover, the requirements are low. You need a brokerage account and some capital, but after that you can find all the help you need from online gurus to deliver profits. Furthermore, swing trading can be effective in a large number of markets.

But while learning how to start swing trading as a part-time or full-time job is relatively simple, it is a risk to your capital. Therefore, you must be careful at all times.