If you are reading this, that means you have heard the term “Swing Trading” and people talking about it, or you might know people who are making a profit out of it. So, what is swing trading? Let’s get into it. 

Swing trading is a type of trading methodology, unlike day trading (intraday) or scalping, where they take positions for a few minutes or a few seconds. 

In swing trading, the trader holds the stock or the position for more than a day. This is a speculative strategy where the trader aligns with the market direction. This trading methodology captures small and medium profits.

Swing traders tend to move on to different opportunities fast. As the name swing trading suggests, the stock moves like a swing, up and down, forward and backward.

The principle is the same. The swing is the stock, and we try to make a profit from its movement. Let’s dive into what is swing trading –

What is swing trading & its Importance?

The importance of swing trading is dependent on the mindset and ideology of the trader. Here we won’t be comparing which trading method is better because it is different and relative to each individual.

Swing trading uses two basic factors – the momentum of the stock and the volume of the stock, so while choosing stocks for swing trading, it is better to choose stocks with high volume and movement.

It helps the trader control emotions by not over-trading. 

ALSO READ: What is Derivative Trading? Futures & Options Explained

Swing Trading Essentially Revolves Around a Few factors: 

  • Capturing the maximum short-term profit and the minimum medium-term profit means your chances of making a profit are higher.
  • It is mostly based on technical analysis and less on fundamental analysis, but a combination of both will yield an edge to make more profit.
  • Like all investing and trading methods, we should have a goal or a time frame so that we know when to enter and exit the stock. It can be done with most financial instruments like stocks, bonds, derivatives, and even cryptocurrencies. 

How to find stocks for swing trading? Check out the TradeBrains portal

The Time Factor Of Swing Trading

In this segment, we will be comparing swing trading to various trading methodologies. In swing trading, the trader holds the stock or position for more than a day.

The trader might keep the position for a few days, a few weeks, or a few months, but it is always less than a year because after a year it will be a long-term position. 

Planning your swing trades based on time is most important because the research should indicate when the stock will break and when the price will fall so that you can exit.

The thumb rule, or the most common trading duration for swings, is two weeks. Many people use many different indicators to buy and sell, based on time, sector trends, price breakouts, and other factors. 

In addition to the technical indicators, use the following data: industry analysis, economic conditions, and the stock’s future outlook. 

The Advantages Of Swing Trading 

Decision-making: It is for people who want to spend less time on research and analysis. It gives the trader the ability to adjust to the market conditions since the time involved is greater than in day trading.

It is more flexible for the trader to change the position. The trader has time to react to the stock’s volatility.

The potential for more profit is high in a single trade. Swing trading allows for a relaxed decision-making process. We are less likely to be biased toward certain aspects that drive the market.

Swing trading facilitates learning and understanding more about the key drivers of the market. 

The Disadvantages Of Swing Trading

  • Cost: You pay less brokerage compared to day trading since the stocks are on delivery.
  • It does not reduce the probability of any losses, so swing traders are more exposed to the markets. The trader has to be more patient to see the results, and it might affect the mental state of the trader if he makes erratic decisions. 
  • Duration: Time is a double-edged sword in swing trading. It can act against you. Your account might generate too many losses if the market goes against your expectations. 
  • The opportunity cost of losing long-term profits is high because of the expectation of a short-term profit.

How To Take A Swing Trade? 

The whole idea is to get out of the trade before the price falls. We have to book profits before the market reverses. 

First and foremost, identify a range-bound market. This is when the market is not bullish or bearish. Observe the price carefully around the support and resistance levels. This will give the stock’s range of trades to trade in.

If it falls within your risk preference, keep trailing your stop loss. That means, the higher the stock goes, the lower the stop-loss percentage.

This is a good risk management technique for swing trading. This way, we can be sure to capture most of the profit even at the time of the reversal. 

The most common swing trading pattern is the “cup and handle” pattern.

Source: Investopedia.com

This example illustrates the cup and handle pattern, we see the swing began in June at the price of 184 and continued till August at the price of 190, there we can see a small handle formed. The price broke out from there all way up to 225. 

Example Of Trailing Stop Loss 

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After 10 days, the price increase, and the trader is increasing the stop loss target too, this risk management technique helps to catch a minimum profit.

People use many technical indicators to predict the movement of the stock; a 52-week high, a one-week high, the Relative Strength Index (RSI), moving averages, and many more. It depends on the trader to formulate a strategy. 


In Closing

Swing trading is very beneficial for a trader who wants to spend less time on research and analysis and yield small-to-medium profits in a small amount of time. It is quite popular since it is simple and easy to do.

It is a great learning tool for newbie traders and is beneficial for retail traders who align their trades with institutions, giving them a better edge to make a profit. That’s all for the article – What is Swing Trading?. Let us know your thoughts on this.

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