What is Swing Trading?
Swing Trading is basically a kind of Fundamental Trading in which traders hold their positions for a few days or a few weeks, and try to gain profits with the intra-week or intra-month movements in the stocks. They focus on positive and negative oscillations and try to gain the best out of them.
This is different from what a day trader does, who usually holds his position only for a few seconds, or a few minutes, or a few hours, but never more than the duration of one trading day. In that sense, Swing Trading is also different from Trend Trading where traders hold their positions for a few weeks or months, based on the long term fundamental trends of the stock. Swing Trading falls in the middle of these two extreme ends of trading.
Importance Of The Right Stock
For Swing Traders to be successful, it is very crucial that they invest in the right stocks. Ideally, the best ones are large-cap stocks that are traded most actively on stock exchanges. Just like the forex broker, stock traders also use strategies to be successful in their field. The ‘swing’ in the case of these stocks happens between high and low extremes, and the trader can gain benefits from one side of the swing for few days or weeks, and then switch on the other side of the trade when the pattern reverses.
Importance Of The Right Market
Swing Traders face a lot of challenges when the market is bear or bull, because in either case, the trends appear in one direction for a long time. And in both cases, the oscillations will not be the same as how they would be when the indexes are comparatively more stable. So ideally, it is good for a Swing Trader to adopt his method of trading when the market is relatively stable, and the stocks are only going up for a couple of days, followed by them going down for a few days, followed by a repeat of this pattern. Even after a month of this pattern if the stock is positioned close to its original value, the swing trader would have had enough opportunities of ups and downs to make profit from, which is not possible in the case of extreme market situations where the stocks keep moving in one direction for a really long time.
Swing Trading For Beginners
It is believed that Swing Trading is one of the best trading strategies for beginners in the trading scene, so that they can get a sense of how the market functions and make a little profit at the same time. One of the reasons why Swing Trading works well for traders is because they get the feedback on their moves every two or three days, and that keeps them motivated to stay in the game.
Most swing traders exit their positions close to the upper or lower channel, without waiting to hit the line on the most exact or precise point, because there is always the risk of the stock not hitting that assumed point and reversing suddenly. So profits are always gained before the stock hits the line.