Today, we will discuss swing trading, what it stands for, popular strategies, concepts, market approaches, and more.
Swing Trading – the middle path between day trading and position trading.
#Swing #trading sits between two other popular trading styles: #day #trading and position trading. If you’re unfamiliar with these concepts, check this article right now!
If you’re confident you can react quickly to market changes, you have a chance to do well when using this strategy. Swing traders hold a position longer than a day and up to a couple of weeks, trying to make the most out of positive price shifts in the market.
But how does it work exactly? Swing traders try to identify “changes” within a medium-term trend and enter only when there seems to be a higher probability of success. Before going any further, make sure you read one of our previous articles on market trends. It could serve you well.
Pros and cons of Swing Trading – why you should consider this strategy (or not).
Advantages of Swing Trading
It might be less time consuming than other strategies.
Because trades might take days to unfold, you don’t need to stay glued to your monitor screen all the time. When using other trading strategies such as day trading, more time and attention might be required.
Say good-bye to overtrading!
If you spend less time in front of a monitor screen, you could be less tempted to overtrade, thus potentially helping you stick to your trading plan better.
This strategy might help you understand the natural course of the markets.
#Financial #markets never follow the same pattern. If you can take advantage of this, you can potentially increase your returns when the market rises and when it pulls back, too.
Disadvantages of Swing Trading
Market swings could be both enemies and friends.
As a swing trader, you’d be looking for signs of support or resistance, BUT that’s no guarantee the markets will follow those signals all the time and move in the direction you anticipate.
Swing trading is not for everyone.
Swing trading takes a different mindset than long term trading or even day trading. Faint-hearted traders might get “spooked of the markets” as the ebbs and flows aren’t something they can easily swallow. But again: sticking to your trading plan could do the trick!
Swing trading is a technical analysis game.
Swing traders could do with a solid technical background, as identifying entry and exit points is crucial. Don’t be scared: with us, you have access to CAPEX Academy, an excellent collection of educational videos and learning materials, all-trading related!
Differences between swing trading and day trading.
By now, you might have noticed we compared swing trading to day trading. However, there are some key differences.
Day trading vs Swing trading – trade duration.
A day trader will generally keep a position open anywhere from a few seconds to a few hours but never more than a day. Swing traders usually hold onto a particular financial instrument for a lot longer, generally a few days to up to several weeks.
Day trading vs Swing trading – how much time do you need to spend for each?
According to investopedia.com, day traders could spend a good two or three hours of actual trading. With the preparation time, it could mean spending at least three to four hours at the computer.
Swing trading, on the other hand, can take much less time. That's also because your trades might last longer, and you might not be required to look for new opportunities very often.
Swing Trading Strategies – time for some technical stuff.
Reversal trading relies on price momentum changes. A reversal is a positive or negative (bullish or bearish) change in the price trend of an asset. For example, when an upward trend starts limping and the price retreats, a swing trader could identify it as a good entry point and could place a trade!
Retracements define short-term movements against a trend, followed by a return to the previous trend. Price temporarily goes back to an earlier point in time and then moves in the same direction a bit later.
Breakout trading is a strategy where you open a trade on the early side of an uptrend, looking for the price to breakout. Swing traders usually enter a position as soon as the price breaks a key level of resistance (when prices stop going up and start dropping).
A breakdown strategy is the opposite of a breakout strategy: you take a position in the early stage of a downtrend, looking for price to breakdown, jumping into the action when the price breaks a key level of support (when prices stop dropping and start rising).
Wrapping things up: is Swing Trading for you?
In conclusion, you might want to try swing trading if you prefer taking fewer trades & holding to them for several days or even weeks in some case. Also, it might help a lot if you are the patient and calm type of guy.
On the opposite, swing trading might not be your cup of tea if you prefer placing many, high-frequency trades and technical analysis strategies aren’t to your liking.
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Sources: investopedia.com, babypips.com, thebalance.com.
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