What is Swing Trading?
Swing trading is one of the methods of trading to earn short to medium-term profits. This trade can be done in a period of several days to several weeks. traders use technical analysis to find trading opportunities. Swing traders may use fundamental analysis in addition to trend analysis and price patterns. Trading usually involves trading for several days to a few weeks to profit from a possible price increase.
Swing trading can involve weekend and boarding risks. As a result, traders may face different prices. Swing traders can use risk/reward rates based on their profit or loss goals. They may also make a profit based on technical indicators or price jumps.
Swing trading in simple language
Swing trading is keeping a short or long position for more than one trading interval. This trading interval is usually less than a few weeks or a few months. This is a standard time frame for this type of trading, but some traders may prefer to extend this period. Depending on price fluctuations, this trade may occur in less than a few weeks.
The goal of swing trading should be to make a profit from the projected price fluctuations. The trader can use different types of stocks with different fluctuations in this trade. However, this type of trade involves the process of recognizing possible price fluctuations. Then the position opens, and after gaining profit from possible fluctuations will close.
In this trade, the trader only seeks to profit from the expected fluctuation. Thus, immediately after the expected fluctuation occurs, the position will be closed and the trader will look for another position.
Advantages and disadvantages of swing trading
Many swing traders use to reward/risk rates to evaluate their trades. By analyzing an asset chart, they decide when to enter the market, where they set their stop-loss price, and where they are likely to make a profit. If they risk $ 1 per share, then a $ 3 profit can be a good reward/risk rate. However, the $ 1 risk to earn $ 0.75 may not be good.
Swing traders usually use technical analysis. The use of this type of analysis is due to the short-term nature of this type of trade. However, fundamental analysis can also be used to improve performance. For example, if a trader sees a wave bullish in the price of an asset, he may be reassured by analyzing the fundamental structure.
Swing traders are usually looking for opportunities in daily charts. They usually look at 1-hour or 15-minute charts to determine arrival time, stop-loss and earn different levels of profit.
This trading method usually requires less analysis time than daily trading. The analysis can also be used to maximize short-term profits.
But on the other hand, in this trade, long-term profit fluctuations are sacrificed for short-term fluctuations. Sudden price fluctuations can also hurt the trader.
Compare daily trading with swing trading
Usually, the opening time of the position in this type of trade is different. Swing trading usually lasts at least one day. However, daily trading will be closed before the market closes. In other words, positions in the daily trade close in one day, but in swing trading, this time lasts for a few days or a few weeks.
Swing trading involves the risk of price fluctuations by holding the position around the clock. Because of this risk, swing traders are forced to invest less in the market. Daily traders usually use more stock capacity and use margins up to 25%.
Swing traders can also use margins up to 50%. That way, if their margin trading is accepted, they will be able to bring in just $ 25,000 for a $ 50,000 trade.
In daily trading, dozens of trades may be made based on technical analysis and smart charts. Swing traders, on the other hand, generally hold an asset for days to months. Swing traders also use both technical and fundamental analysis.
Trading Strategies
A swing trader usually looks at multi-day charts. They can also swing the intersection of average prices, cup and handle patterns (cup-and-handle pattern) Head and Shoulders (head and shoulder pattern), flags, and triangles use. Important inverted candlesticks can also be used as indicators for trading.
Swing traders also use tools such as average daily and weekly fluctuations, momentum indicators, price range detection tools, and market sentiment.
Finally, each swing trader can use their own efficient personal tools. But the ultimate goal is the same for all of them. Everyone is looking to predict the uptrend of an asset. This is not easy and no strategy will always work. There is no need to make a permanent profit by choosing the right risk/reward rate. By choosing the right rate, the trader will not always have to make a profit.
An example of a swing trade for Apple
The chart above shows when Apple Stocks (AAPL) had a strong uptrend. Then came a small “cup and handle” pattern. This pattern usually indicates that the price movement will be continuous. This is if the price continues to rise along with the cup handle.
in this case:
- Prices continue to fluctuate along with the category. So a good buy will be around $ 192.70.
- It looks like the stop-loss point at the bottom of the contract category, which is indicated by a rectangle, is around $ 187.50.
- Based on the starting point and stop-loss, the potential risk for this trade is $ 5.20 per share (192.70 – 187.50).
- If the trader is looking for a profit twice the risk limit, he should choose a price above $ 203.10 (+ 192.70 (2 x 5.20)).
Apart from the risk/reward rate in swing trading, the trader can use other exit mechanisms. For example, a trader can wait for a future drop. With this method, the exit signal was not realized until the price reached $ 216.46. At this time, the price was lower than its last drop. With this method, the earnings per share were $ 23.76. This swing trading method takes about two months.
Other exit methods can also be used. For example, when the price falls below the moving average or even when an indicator such as a stochastic oscillator crosses its signal.
What does swing mean?
“Swing” literally means “price fluctuation”. In this type of trade, entry and exit points are determined in intervals of several days to several months between optimistic and pessimistic situations.
What assets can swing trading be used for?
This trading method is usually used for a wide range of goods with a wide range of applications. Such assets generally have certain ups and downs. This way, the swing trader can easily predict their volatility. Swing trading is also used in Forex and commodity trading
