Buying and selling of stocks that show an upward or downward trend in the future
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What is Swing Trading?
Swing trading is a trading technique that traders use to buy and sell stocks when indicators point to an upward (positive) or downward (negative) trend in the future, which can range from overnight to a few weeks. Swing trades aim to capitalize on buying and selling the interim lows and highs within a larger overall trend.
Traders use technical indicators to determine if specific stocks possess momentum and the best time to buy or sell. To exploit the opportunities, the traders must act quickly to increase their chances of making a profit in the short-term.
How Swing Trades Works
Swing trading seeks to capitalize on the upward and downward “swings” in the price of a security. Traders hope to capture small moves within a larger overall trend. Swing traders aim to make a lot of small wins that add up to significant returns. For example, other traders may wait five months to earn a 25% profit, while swing traders may earn 5% gains weekly and exceed the other trader’s gains in the long run.
Most swing traders use daily charts (like 60 minutes, 24 hours, 48 hours, etc.) to choose the best entry or exit point. However, some may use shorter time frame charts, such as 4-hour or hourly charts.
Swing Trades vs. Day Trading
Swing trading and day trading appear similar in some respects. The main factor differentiating the two techniques is the holding position time. While swing traders may hold stocks overnight to several weeks, day trades close within minutes or before the close of the market.
Day traders do not hold their positions overnight. It often means they avoid subjecting their positions to risks resulting from news announcements. Their more frequent trading results in higher transaction costs, which can substantially decrease their profits. They often trade with leverage in order to maximize profits from small price changes.
Swing traders are subjected to the unpredictability of overnight risks that may result in significant price movements. Swing traders can check their positions periodically and take action when critical points are reached. Unlike day trading, swing trading does not require constant monitoring since the trades last for several days or weeks.
Trading Strategies
Swing traders can use the following strategies to look for actionable trading opportunities:
1. Fibonacci retracement
Traders can use a Fibonacci retracement indicator to identify support and resistance levels. Based on this indicator, they can find market reversal opportunities. The Fibonacci retracement levels of 61.8%, 38.2%, and 23.6% are believed to reveal possible reversal levels. A trader might enter a buy trade when the price is in a downward trend and seems to find support at the 61.8% retracement level from its previous high.
2. T-line trading
Traders use the T-line on a chart to make a decision on the best time to enter or exit a trade. When a security closes above the T-line, it is an indication that the price will continue to rise. When the security closes below the T-line, it is an indication that the price will continue to fall.
3. Japanese candlesticks
Most traders prefer using the Japanese candlestick charts since they are easier to understand and interpret. Traders use specific candlestick patterns to identify trading opportunities.
Additional Resources
Thank you for reading CFI’s explanation of swing trading. CFI offers the Capital Markets & Securities Analyst (CMSA)®certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:
FAQs
About 90% of traders report losses during trading. The Robust Trader is more optimistic and claims that the success rate of Swing Trading is usually in the range of 10% to 40% per year.
What is the most successful swing trading strategy? ›
One of the most popular ways to swing trade is by following trends. This means buying stocks that are going up and selling them when you've made a decent profit or when they start going down. To spot an upward trend you can use tools like moving averages, Relative Strength Index.
What is the average salary for a swing trader? ›
How much does a Swing Trading make? As of Sep 4, 2024, the average hourly pay for a Swing Trading in the United States is $12.19 an hour.
Why is swing trading so hard? ›
So, when entering a swing trade, you often must determine why you're buying or selling at a specific price, why a certain level of loss might signal an invalid trade, why price might reach a specific target, and why you think price might reach your target within a specific period of time.
Can you make a living off swing trading? ›
Can you make a living swing trading, or is this just another case of “too good to be true”? This trading style is positioned between day trading and long-term investment and demands a strategic approach and a solid understanding of market trends. But, yes – you can absolutely get started swing trading for a living.
How long does it take to get good at swing trading? ›
You will need to be patient and be ready to work hard. For learning swing trading, it takes at least 6 months and for intraday trading, at least a year. So don't get discouraged by the time required because this is a skill that will make you money for the rest of your life.
What is the best timeframe for swing trading? ›
The best timeframe for swing trading includes 1-hour, 4-hour, and daily timeframes. Here's why: 1-hour charts: Short enough to give you intraday insights but long enough to help you spot broader swings. 4-hour charts: A balanced point of view for identifying short-term and medium-term trends.
Who is the best swing trader of all time? ›
Trading Secret from Dan Zanger: One of the Best Swing Traders of all Time. Have you ever heard of Dan Zanger? He is one of the greatest personal swing traders of all time and managed to turn 11,000 dollars into 18 million in less than 20 months. A Return on investment of more than 164,000%.
What is the simplest most profitable trading strategy? ›
One of the simplest and most widely known fundamental strategies is value investing. This strategy involves identifying undervalued assets based on their intrinsic value and holding onto them until the market recognizes their true worth.
Can you swing trade with $1000 dollars? ›
To give yourself more wiggle room, I suggest starting with at least $600 for swing trading forex. Ideally, start with $2,000 or more. If you start with $600 you'll have to grow the account slowly. If you are a good trader, you may be able to average several dollars per week.
The higher the risk, the higher the return. When comes to swing trading, it is a low risk system. So, your return is going to be minimal. A good professional swing trader will earn between 5% to 15% return per month.
Is swing trading a viable career? ›
Since swing trading can be undertaken by anyone with some investment capital and does not require full-time attention, it is a viable option for traders who want to keep their full-time jobs but also dabble in the markets.
Why do most swing traders fail? ›
The main reason 90% of swing traders don't make a profit from their efforts is that they don't take it seriously enough. They open an account, read a few articles, and try and dive right in. Learning swing trading is an ongoing process that should never stop.
What are the common swing trading mistakes? ›
Getting distracted by a stock's fundamentals
Swing traders make decisions based on the price at any moment. The price is what pays you the profits. Don't make reactionary trades just because of an event relating to the stock's fundamentals. A stock's fundamentals are only a distraction to the swing trading strategy.
Can you become rich in swing trading? ›
When done correctly using sound trading rules, swing trading can absolutely produce big gains. Even though you're aiming for 5-10% profit in a swing trade, those gains add up quickly when you reinvest the profits in new stocks and grow the overall size of your portfolio.
What is the loss percentage for swing traders? ›
While waiting for a larger profit to emerge, swing traders make several small wins to add to their ultimate profit. This helps them secure a more substantial profit volume. But to do that, swing traders keep their stop loss level low at 2-3% and manage to keep the profit-to-loss ratio at 3:1.
What is the success rate of traders? ›
Intraday trading is quite popular with traders in the Indian stock market because of its potential to deliver quick returns. However, data shows us that over 95% of Indian traders are prone to losing money in the markets. A vast majority of traders also tend to stop trading within 1 to 3 years.
What is the moving average for swing trading? ›
A Simple Moving Average, commonly known as (SMA) is the most widely used technical indicator for swing trading. The SMA is a basic form of moving average, and it's calculated by taking the average of a stock's closing prices over a specified period of time (commonly used time frames are 20,50,100 and 200 SMA).
