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Swing trading is a trading strategy that falls somewhere between day trading and long-term investments. Swing traders typically hold positions open over night, and it is not unusual for swing traders to sometimes hold on to a purchase for several weeks as they wait for the right moment to close the position. Still, they are not the type of long-term investors who will purchase an asset and then simply ignore short-term changes in market price.
Is swing trading right for you? A successful swing trader is typically someone who is both disciplined and good at managing risk.
Which assets?
A wide range of asset types can be suitable for swing trading, including foreign currency, cryptocurrency, company shares, options, exchange traded funds, and more.
Generally speaking, swing traders tend to buy assets for which the liquidity is high and large volumes are traded each trading day. They want to be able to quickly close their position when the time is right, and they also like the type of swings that tends to be associated with this type of asset.
Position size
Swing traders have a tendency to buy smaller positions than day traders. This is due to several reasons. One is the increased risk associated with keeping positions open for longer and not closing them before the end of the trading day. Also, using leverage to boost positions sizes tends to be both easier and less costly for day trading.
Also, day traders have a stronger need to open really big positions since they typically make their profits from tiny price movements. If you only profit 1 cent per share, you need to own a lot of shares to make a substantial profit. Swing traders have time to wait for larger price changes and hope to earn more per share (or other asset), thus decreasing the need to open huge positions.
Swing trading and technical analysis
May swing traders use technical analysis (TA). This is a method where traders seek to use historical trading data (especially price and volume) to see patterns and identify opportune moments to enter and exit positions. To achieve this, charts are utilized, since watching the data plotted on a chart makes it easier to spot patterns.
Unlike day traders, swing traders tend to focus on patterns that emerge over several trading days.
Examples of patterns that many swing traders doing TA will look for:
- Flags
- Triangles
- Double bottoms
- Moving Average Crossovers
- Head-and-shoulders
- Cup-and-handle
- Shooting star
There are trading platforms available online with built-in tools for technical analysis, and they can also provide you with the required historical data.
Learn more about Swing Trading
If you want to learn more about swing trading, a lot of swing trading resources are available online for free. This includes everything from e-books to instructions videos and seminars. You can also join online forums where swing traders share their experiences.
Many trading platforms include excellent free resources, but it always a good idea to seek information and advice from more than one source instead of uncritically following the advice of anyone.
