What is Swing Trading? Definition, Pros, Cons & More!

By Trader Pit

July 9, 2021


Swing trading is a type of stock trading that involves the buying and selling of a stock in a stock market. This type of trading is one of the most profitable in the stock market, due to the market’s volatility. It is also one of the riskiest.

Swing trading is a type of trading practice in which traders set up buy or sell orders at specific points during a fluctuating market price. The practice is designed to capitalize on short term price trends and to minimize the downside risk a trader faces. Swing traders are typically more aggressive because they tend to buy or sell during extreme market moves. Other traders describe swing trading as “mini-trades” in which they trade a much smaller amount of money than standard trading.

With swing trading, investors profit from market fluctuations by holding a stock for a longer period. Day trading positions last less than a day, while swing trading can last up to a week. It is used for trading in many securities, such as currencies, futures, options and shares.

Swing trading is advantageous because it offers more profit opportunities than day trading and a faster return than long-term investing. But on the other hand, you need to constantly monitor your trades because you can miss out on profit opportunities if you don’t act quickly.

So what is swing trading?

In its simplest form, traders hold securities for a long period of time in order to make a profit. It can take from one night to several weeks. The goal of swing trading is to identify a trend and find swings within that trend to make a profit. Technical analysis allows you to identify and react to these fluctuations. Both day trading and swing trading involve higher risks and costs than traditional investments.

Swing trading is often practiced by individuals rather than large companies because large companies trade large volumes, making it difficult to get in and out of the market when needed. This is a great option for novice traders as it allows them to gain trading experience. Losses can be minimized by using the stop loss technique, and it offers a perspective for both short and long term trading.

(Video credit: Elearnmarkets)

Benefits of swing trading

Swing trading is useful for beginners and investors who need more time to make trading decisions. It has a number of advantages, such as. B. :

– Versatility – Swing trading is a good option for people who can’t trade during market hours but still want to stay active. You can set the price at which you want to enter and exit the market, and you can set stops to keep the stock below a certain level – there are trading programs that even allow you to set multiple stop orders throughout the day. In addition, swing trading can be used for a variety of securities, such as bitcoin and standard options.

– Identify Opportunities – Swing trading is not usually used by large companies because the trader is constantly entering and exiting the market, but it does have its advantages. This enables the investor to detect new opportunities in the market. Looking at the financial chart will show you the long-term trend of a stock, but it is not always protected by support and resistance. By getting in and out of the market regularly, you can identify opportunities in different markets by making new trades. In this way you not only spread your risk, but also tie up far less capital in a single share.

– Lower losses – Stop losses result in lower losses than long-term transactions. A stop loss on a swing trade can be 100 pips on a 5 hour chart, but a stop loss on a weekly chart can be 400 pips or more. This allows you to take larger positions on long-term trends. You can also place several stop losses throughout the day to protect your shares from loss.

– They can understand trades better – Swing traders are technical traders and have certain signals that tell them when stocks are doing well/bad. This makes it easier for a swing trader to cut losses before they occur. Long term traders cannot do this because they trade on the fundamental parameters of a stock. On the other hand a swing trader has to be patient and make fewer trades.

Disadvantages of swing trading

Although swing trading has its advantages, it also has its disadvantages. Here are some of the difficulties associated with swing trading:

– Unpredictable Changes – Swing trading can change drastically from one day to the next. So if the market moves while you sleep, you may be surprised the next morning. In some cases, even a stop loss may not protect your investment. Trading itself is risky, and getting in and out of the market means risking your money more often. For this reason, you may suffer losses from time to time.

– Expertise – While not necessarily a disadvantage, swing trading requires knowledge of technical analysis on the part of the trader. Looking at the chart to find the highs and lows is easy, but as a swing trader you need to identify the entry and exit points. Learning these skills takes time and effort, and a trader needs to master them before starting swing trading.

– Psychology. When it comes to swing trading, you need to have a different mindset. You must be able to think and make decisions confidently. A swing trader is indeed more aggressive than a regular trader who only studies the charts. Swing trading does not give you the same leverage as day trading.

 

Short note
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Also read : What is derivatives trading? Explanation of futures and options

Ascending and descending swing tactics

Rising trader

Stocks that move in the market rarely move in a straight line. Shares may rise gradually for a few days and then fall gradually. When a stock moves upwards, it is called an uptrend. Bullish traders look for an initial uptrend followed by a reversal, called a counter-trend. This is followed by a new upward trend. You should only enter the trade when the initial upward trend resumes.

Beer Dealers

Like upward trends, downward trends also occur in stages. A stock may show a downtrend for a few days, followed by an uptrend for a few days and then another downtrend. Traders should enter a bearish swing trade if the stock resumes its downtrend. You can do this with a stop loss limit order.

Frequently Asked Questions

Why is swing trading not good?

Swing trading is a trading strategy that is used to take advantage of short-term price movements. It is a strategy that is generally used by traders who are looking for quick profits.

Is it good to do swing trading?

It is good to do swing trading if you are looking for short-term profits.

Is Swing Trading bad?

Not necessarily. There are many different types of trading strategies. Some traders choose to trade stocks, while others choose to trade futures.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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