What is Swing Trading?: Meaning, Strategies, And More

Did you know that a swing trader could earn a whopping profit of 24 percent in a year? The lucrative profit offered by Swing Trading has caused it to start growing in popularity among the new generation of traders.

While trading, you can employ several different strategies that work for your trading style. One of the most well-liked and popular trading strategies these days is Swing trading which can help you earn short-term gains. A swing trade particularly depends on the price movements produced by several lows and highs in the stock market. In this blog, we will understand what is Swing Trading, strategies, its advantages and disadvantages, and various tools and tactics you can use to successfully swing trade.

What is Swing Trading?

Swing trading is a popular method of trading in which gains are sought over a few days to several weeks in stock. Technical analysis is a key tool used by most swing traders when looking for profitable trading opportunities. Swing trading is usually described as holding a position, whether long or short, for more than one trading session.

However, it does not typically last for more than a few weeks or months. It aims to take advantage of potential price movements by capturing only a portion of them.

In simple terms, Swing trading can be described as the process of:

• Predicting where the price of an asset is likely to go.
• Acquiring a stock position.
• Earning profit if the predicted move actually occurs.

Many swing traders evaluate trades based on risk and reward. Along with that, they determine where they can eventually earn profit by carefully examining the asset’s chart.

Also Read: How To Invest In Share Market?

Understanding the ‘Swing’ in Swing Trading

A ‘Swing’ is described as an upward or downward movement in stocks, which is significant enough to create a new price level. A Swing is regarded as a change within a trend, and not a trend itself. The primary goal of a swing trader is to buy when prices are falling and sell when they are rising.

Swing trading is an intelligent strategy to seek profit from market price fluctuations. The below-mentioned scenarios are the leading causes of such fluctuations or swings:

• Major modifications to the present prospects of a specific business or organization.
• Modifications in investor perceptions of a particular sector, industry, or market.

If you want to master your trading skills, you can enroll in a stock market trading course.

Swing Trading Strategies and Tools

Each swing trader develops a strategy and plan that gives them an advantage over other traders. Some of these techniques include:

• Carefully looking for technical information in stocks. 
• Examining multiple patterns such as cup and handle or head and shoulders.
• Searching trade setups that frequently result in predictable changes in the price of an asset.
• It is not necessary to win every time when the risk/reward ratio is favorable. 

Remember, a trading strategy requires fewer wins to generate an overall profit over a large number of trades. You can use the following tools to build your strategies:

• Daily and weekly candlestick charts
• Price Range Tools
• Momentum Indicators
• Market Sentiment Measures

Advantages and Disadvantages of Swing Trading

Swing trading can produce great profits over time, however, it is important to know that it is not without its risks. The following are the advantages of the trade:

• The process of swing trading takes less time to execute as compared to other trading methods.
• It maximizes the possibility of short-term profits by catching the majority of market swings.
• Technical analysis is the only tool that most swing traders need. It streamlines the whole trading process.

Having considered the advantages of swing trading, let’s take a look at its disadvantages:

• The stock positions can turn substantially in a very short duration even overnight.
• Since swing trade is prone to market fluctuation and reversals, the risk of loss is high.
• Traders can not benefit from long-term trends in the market and have to rely on short-term performance.

Day Trading Vs Swing Trading

Besides swing trading one of the most prominent kinds of trade is day trading. The difference between the two is typically based on duration. Take a closer look at the difference between day trade and swing trade below:

Day Trading	Swing Trading
Positions are generally limited to only a single day.	This entails holding positions for a few days to weeks.
Traders close out positions prior to the market closing.	Traders frequently require at least an overnight hold.
Trading does not include any overnight risks.	Trading includes unpredictable overnight risks for holding overnight positions.
Trading involves holding large-sized positions.	Trading involves holding small-sized positions.
Trading can employ a margin of 25%.	Trading generally includes a 50% leverage or margin.

Swing Trade Stocks

Every expert relies on a different stock when it comes to swing trade. However, there are a few stocks that are quoted by almost every trader or financial advisor based on the price surge and volume. These include:

• Infosys
• SBI
• TATA Power
• Reliance
• ITC
• Gland Pharma
• KPR Mills

Conclusion

Swing trading is a type of trading that uses favorable risk/reward ratios to try to profit from short- to medium-term price changes. Technical analysis is the main tool used by swing traders to choose the best entry and exit points. However, they can also utilize fundamental analysis as an additional filter.

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