Swing training sits somewhere between day trading and trend trading. A swing trader holds the stock for a short to medium-term period of time. A swing trader, as the name suggests, looks for the ‘swings’ patterns in the price of the things they want to buy in the market.
Swing Trading Vs. Day Trading
Swing trading is a short-term trade. It usually lasts longer than a day but less than a month. That is why I previously mentioned, that swing trading is placed between day trading and buy-and-hold investment. A day trader holds the stock from few hours to a day but never for longer than one day while trend traders hold the stock from few weeks to months. Swing trading is between these two extremes.
Swing traders use technical analysis to find out tradable opportunities. For a time being, they study the price of the stock they want to buy daily and then they limit the time to 5 hours and study the timeframe in order to find better trade entry levels.
Another difference between day traders and swing traders is that the first group spends all day analyzing the price chart but swing traders only need to check out the swings of the price at the end of the day or for a 4/5 hours period of time.
That is why swing trading is suitable for those who are new in the market and they do not want to become a full-time trader. They can keep their own job and trade part-time.
How Does Swing Trading Work?
Swing traders focus on the individual swings of the market. The price in the market comes in waves. It might go up which is called upswings or it might come back down which is called downswings. Swing traders focus on the individual swings, the upswings, and downswings.
Swing traders almost always trade in the direction of the overall trend. So in an uptrend, they trade on upswings and in a downtrend, in a downswing. Beginner swings traders usually trade on uptrend which means that they trade on upswings. Because the price always can and might go up but it won’t come lower than a specific amount.
Swings traders work to get small wins that become a significant amount after a period of time. If they gain 4% profit per month it will be a great deal by the end of the year.
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Strategies for Swing Trading
Bull Flag on Daily Chart
This pattern is one of the most accessible and conservative patterns. A bull flag pattern happens when we have a strong uptrend in the stock. It is called a bull flag because when you look at the chart it looks like a flag on a pole and also for the reason that it is upward, it is called a bull flag. Most of the days, there are hundreds of bull flags to choose from. Choose the one with high volume upswings and lower volume of downswings.
When the trend moves higher eventually a pullback happens because the market needs a break. Then you should look for a bull flag. This bull flag is consist of a smaller range of up and downs. Tighter these rangers, higher the breakout. The bear flag is similar to the bull flag, the only difference is that in the case of the bear flag we have a downward trend.
The Mean-Reversion Strategy
When the market goes upward it will eventually come back down, this is the mean-reversion strategy in a nutshell. The market makes over-exaggerated moves on both sides. It will go up and then it will reverse it and goes down. These swings help us predict the next move of the market.
The Breakout Strategy
Breakout happens when the price goes higher than ever. Previously when the priced this point we had a reverse because this is a mean-reversion strategy, when the price goes it eventually comes down. But this time, it passes the reverse point and goes higher. It indicates that we have a huge demand or a buying potential, that is why the price might go even higher.
T-line strategy is actually the same with EMA (8 Day Exponential Moving Average). Anywhere in the chart, you can set a moving average line (MA). You can make a line from one day to 500 days.
For the T-line strategy, you actually draw a line for 8 days. This is like the footprint of the price over previous days.
When the price reaches above the T-line then the price will continue to rise. When it is below the T-line it will go downward.
The Advantages and Disadvantages of Swing Trading
It is not time-consuming
As previously mentioned, if you want to be a swing trader you do not need to quit your job and check out the market prices all day long. So if you are just entering this trading business, swing trading might be the best choice.
It does not tie down your capital for a long period of time
It will keep not tie down your capital for a bad stock for a long time, unlike long-term trading. Your capital will be tie-down from less than a day to a few days. That is not much.
It is hard to figure out the timing
Even if you are an experienced swing trader, you might not be able to see the pattern and lose some opportunities.
There are overnight and weekend price changes
As the swing traders stay open for the night, they might experience price gaps. The only way to reduce these gaps is to trade smaller trade sizes without leverage.
Now that you know all about swing trading and how it works, you are able to decide whether this type of trading is suitable for you or not.
Remember that every type of trading has its own advantages and disadvantages, you cannot find a trade that is absolutely perfect. Swing trading is one of the best for beginner traders. So if you want to start trading, this one is a good first step.
“If you have any feedback about what is swing trading that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”
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