Definitive Guide on Swing Trading: Definition and Strategies

swing trade definition

Like pretty much any other type of trading, swing trading can be profitable. In pursuing this strategy, swing trade definition a trader must set a sound entry point. The aim is to be ahead of the curve and get a favorable price.

swing trade definition

Before getting started, be sure to educate yourself on the risks and potential rewards of swing trading. If you’re interested in trying out swing trading, there are a few things to keep in mind. The swing trader’s focus isn’t on gains developing over weeks or months; the average length of a trade is more like 5 to 10 days. In this way, you can make a lot of small wins, which will add up to big overall returns. If you are happy with a 20% gain over a month or more, 5% to 10% gains every week or two can add up to significant profits.

What is the difference between swing trading and day trading?

Most day traders prefer to avoid “overnight risk,” or the risk that the position might move against them while they’re sleeping (if it trades on a 24-hour basis) or open at an unfavorable price the next morning. Swing trading can be a profitable and accessible way for an investor to get into trading. However, compared to standard stock or ETF investing, the relative complexity involved with a swing trading strategy is not well-suited for amateur investors. As a swing trader, working with support and resistance levels can help you refine your entry and exit points. You still need to stay on top of your trades, ready to respond to stock price movements. Swing trading, like day trading, involves using trends to improve stock portfolios and their value in a short period of time.

  • But, for those who put the time into learning how to do it, swing trading can be a rewarding strategy.
  • Swing trading is a process of buying and selling stocks for short durations, usually a few days to a couple of weeks.
  • A swing trader is always on the lookout for these situations.
  • Standard deviation is a commonly used volatility metric to set expectations for how far a stock’s price might move.
  • Swing traders rely on a wide variety of technical indicators and charts to gain insight into market psychology, analyzing multi-day patterns to determine the likely direction of a stock price.

Traders that do not meet the minimum $25,000 balance under PDT (Pattern Day Trader) rules may consider swing trading since overnight positions do not qualify as intraday roundtrips. The PDT rule limits traders to three intraday roundtrips if the balance is under $25,000. Swing trades bypass this stipulation since all positions are held a minimum of one overnight. Swing traders, on the other hand, trade less frequently because it takes longer to complete their trades.

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Following the crowd is the name of the game with this style of trading. The candlestick chart above illustrates the “cup and handle” consolidation pattern, where the cup is u-shaped and the handle points slightly downward. Similar to a reversal, a retracement is when a trend reverses its position, but not completely and not for long. It retraces its movement (goes back to where it was) before continuing again in the same direction.

Fundamental analysis is the research of a company’s operations. Earnings reports tend to have the most material impact on stock price. Both day traders and swing traders will need to pay attention to fundamental analysis to some extent. Day traders will benefits from knowing what may be causing the underlying price gap up or down in a stock. Swing traders will pay more attention to the fundamentals and any relevant data from the company since they are most affected by event risk, especially overnight.

Ask Al: Swing trading definition and discussion

If a stock as poor liquidity or doesn’t have deep action in a broker’s trade book, it may be difficult to sell or may require substantial price discounts to relinquish the shares. Swing trading tries to identify entry and exit points into a security on the basis of its daily or weekly movements between cycles of optimism and pessimism. Karl Montevirgen is a professional freelance writer who specializes in the fields of finance, cryptomarkets, content strategy, and the arts. Karl works with several organizations in the equities, futures, physical metals, and blockchain industries. He holds FINRA Series 3 and Series 34 licenses in addition to a dual MFA in critical studies/writing and music composition from the California Institute of the Arts.

swing trade definition

This means they may place multiple trades within a single day. Some traders attempt to capture returns on these short-term price swings. The term “swing trading” denotes this particular style of market speculation. Perhaps you’ve been tempted to venture into this style yourself.