There are several approaches that traders around the world swear by but each of these approaches are analytical and it requires a great deal of understanding to grasp the logic behind their functionality.
To understand which trading approach suites you the best, you must first draw up a plan of which stocks you invest or wish to invest in and this would then give a clearer view of how much risk you wish to take.
There is no single trading approach which could be touted as the one with the highest success rate. Each trader trades differently and each approach is designed to suit the needs of different kinds of traders.
One such trading approach which has gained quick popularity over the years, is Swing Trading.
Swing Trading is mostly used by Technical Analysts to note the changing movement of market price.
Swing Trading is mostly found to be slightly different from other trading approaches available in the market.
This particular post aims to give a detailed overview of what Swing Trading is; how it works and what its advantages are.
Swing Trading – How does it Work?
Swing Trading is an approach which attempts to benefit from the gains in a stock within the span of one to four days.
Technical Analysis is extensively used by Swing Traders to find stocks with short term price momentum. These swing traders do not look for the elemental value of stocks but are interested in the price trends and patterns.
These market movements as noted in swing trading are in the form of waves or “swings” which note the changing movement of market price.
Mostly used by traders who work from home and day traders, swing trading helps to find out which stocks have the exceptional ability to move up in a short span of time, for the trader to be able to act quickly in accordance.
Swing traders usually keep a particular stock on hold for a time period spanning between a few days or two-three weeks. It is during this time frame that they trade the stock keeping the intra-month or intra week oscillations in mind.
Most traders believe that Swing Trading offers reward-risk characteristics. Since Swing Trading is mostly based on Technical Analysis, it relies on the current stock price and volume trends as well.
It is seen that some swing trading strategies possess both a trend and a counter trend as trading components.
Strategies For Swing Trading
Align Your Trade According To The Direction Of The Market.
One of the most important details you must pay heed to while dealing with Swing Trading is to align your trading preference according to the market trends.
Also, make sure you know what kind of an investment you are looking for – a short term or a long term one. This would in turn reflect on your choice of stocks and trend mapping.
Never trade only on the short-term chart of the swing-trading time frame
It would not be advisable to trade only on the short term chart of the swing trading time frame. As mentioned earlier, your preference of investment would make this decision for you. While dealing with Swing Trading, make sure you synthesize all that the daily, weekly and hourly charts advice you to do.
Try to enter the trade near the beginning of the trend, not near the end
It has been noticed that if you enter the trading zone near the beginning of the trend, you would find it easier to catch up with the changes that are coming your way.
Therefore, most seasoned traders advice against entering the market near the end of the trend as it would be difficult for you to grasp the changes which have come over the market.
It has been noticed that the earlier you pick up on a change in the trend, the less risk you would undertake and the greater your profits would be.
The most important factor to keep in mind would be to pay close attention to the overall market averages. When they are overbought or oversold, they are usually prone to reversal.
Use of multiple indicators
There are several trading indicators available to us in the stock market today.
Be it technical analysis or fundamental analysis, the use of multiple indicators further assures your trading movement.
It ascertains whether you are following the right trend and investing in the right stock.
It would be wise on your part to use multiple indicators while dealing with Swing Trading as well. Just as in case of other forms of trading, swing trading also requires a great deal of precision.
Therefore, use of multiple indicators makes trading an easier affair – as different indicators would be mapping different aspects of trading.
Use Candlesticks for easier interpretation
Most traders around the world believe that candlestick charts are a lot more easier to understand and interpret than traditional bar charts.
Candlestick charts would help you identify whether there is buying pressure, selling pressure and how intense the pressure is.
This would then be applied to your investment strategies to make your trading experience a lot smoother.
Using a T-line Trading Strategy
Using the charts, you can identify the T-Line and use it to make better trading decisions.
As per a T-line trading strategy, it has been seen that if a stock closes above the T-Line, there is a greater probability price will continue to rise.
Likewise in a downtrend, if a stock closes below the T-Line, it will probably continue to fall.
This technique works well with several trading plans, especially swing trading and investment strategies.
Use Swing Trading For Near & Intermediate Term Trading
It has been noticed that Swing Trading is best suited for near and intermediate term trading.
Near-term trades last from several days to weeks while intermediate term trading last from 3 to 6 months.
Therefore, it has been found highly suitable for people who are day traders and cannot trade for a very long time in a day.
Advantages of Swing Trading
As per traders around the world, some advantages of Swing Trading are:-
Smaller Time Bracket in play – Since swing trading works over a period of a few days or a couple of weeks, swing traders need not spend a lot of time on online trading portals scanning for potential trading opportunities.
Thus, swing traders possess more time to view charts and to decide on their trading plan, due to their increased trading time in hand.
Higher Profit Potential – Due to the lower risk associated with Swing Trading, day trading in the same market helps traders reap better profits.
Since financial markets never move in the same direction forever, swing trading allows you to take advantage of this factor while the market in the few days within the smaller time frames in hand.
By being in and out of the market within a constrained time frame, traders can collect profits and identify other markets that are setting up for other trades. – This allows traders to limit the risk and tie up a lot less money instead of continuously changing one’s margins according to the new trade in sight.
Another advantage associated with Swing Trading is that once your first trading position is closed, you do not have to put in more money into your trading account to move on to the second position.
Stop losses in Swing Trade are typically smaller than long term trades – Stop losses are orders placed with a broker for buying or selling a stock once it reaches a certain price.
This allows for you to place larger sized positions instead of extremely low leveraged ones via the longer-term trends.
Keeping these advantages in mind, traders can use these points to their strength while taking up newer approaches to stock market trading.
Whichever be the approach, it is vital to remember that stock market is prone to constant change and to take unmitigated risks might prove to be quite dreadful, since all approaches have advantages as well as disadvantages – and, it is upon us to weigh which one might work out well for us.
Do provide us your suggestions and opinions on the topic!