Swing Trade Meaning


Swing traders tend to watch broad indices, such as the S&P 500, which tracks the performance of top 500 listed companies in the US. Such benchmark indices usually have well-known psychological price levels that are watched keenly by investors. For instance, when the price of a benchmark index is known to hit 10,000 during a recession, swing traders can look to enter sell trades when its price breaks below the 11,000-mark. Swing trading utilises technical and fundamental analysis to identify market direction as well as optimal price entry and exit points in the market. The swing trading strategy requires patience and calmness because there will be numerous intraday price fluctuations as the trade plays out.


https://forex-world.net/ averages are known to smooth out price action by plotting the average prices of an asset over a defined period of time. For instance, a 20-period moving average plotted on the daily chart will show the average price for the last 20 days. Swing trading has a more flexible timeline, which gives bullish index swing traders a bit more cushion to rely on these statistical trends. One trading style isn’t better than the other; they suit different needs and styles.

A trader can measure their performance as a percentage of the trading channel width. The perfect trade would be buying at the bottom channel line and selling at the top channel line, which would be a 100% performance. If a trader captured one-half of the channel, it would be a 50% performance. The goal is to continually increase the performance percentage of the average winning trade. Aside from a risk/reward, the trader could also utilize other exit methods, such as waiting for the price to make a new low.

  • No one can have such returns over a long period without sooner or later having a huge loss.
  • When you open a new, eligible Fidelity account with $50 or more.
  • If they think the price is about to freefall faster than a skydiver leaping out of an airplane, they’ll “short” the stock (which means to “bet against” it) instead.
  • Since day traders don’t generally hold positions overnight, they can avoid market-gaps that are created from news announcements that occur during after hour trading.
  • Momentum signals (e.g., 52-week high/low) have been shown to be used by financial analysts in their buy and sell recommendations that can be applied in swing trading.

This often results in trades that generate huge profits compared to the risks involved while taking them. Both types of trading can take large amounts of time—swing traders might do more research while day traders do more trading. Swing trading can be a profitable strategy for traders who are adept at using technical analysis, and it has the potential to work in both bull and bear markets. It’s not without risks, however, and you could end up with worse returns than if you pursued a long-term strategy. During specific periods the bid-offer spread of an asset could expand.

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Positions entered into through swing trading usually last a few days to a few weeks. It’s a medium-term trading strategy geared toward making profits as consistently as possible. Bull markets are a term used by investors to describe an overall optimistic attitude toward the stock market.

support or resistance

But for short-term capital gains you’ll be taxed at ordinary income rates. One way to avoid these taxes is to make the trades in a retirement account such as a traditional or Roth IRA. Swing trading is a trading style that involves holding on to a position for a period of time ranging from a couple days to a couple weeks. For an example of swing trading, let’s say an investor has been tracking performance of a widely traded stock ETF.

Swing Trading: What It Is and the Pros and Cons for Investors

Therefore, in this situation, the volume of trading increases manifold. Technical AnalysisTechnical analysis is the process of predicting the price movement of tradable instruments using historical trading charts and market data. Strategies used for swing trading are Fibonacci retracements, support and resistance triggers, T-line trading, and Japanese candlesticks. Determine significant support and resistance levels with the help of pivot points.

Swing traders use the indicators of technical analysis to identify price swings and determine whether a stock price will rise or drop in the short run. In doing so, they invest in securities that have momentum and select the best timing to buy or sell. More importantly, swing trading doesn’t demand the same level of active attention as day trading, so the swing trader can start slowly and build the number of trades over time. But it does require the investor to take a deep dive into technical analysis, so an aptitude for charts and numbers is necessary. The opening price will reflect the shock of any unexpected news. Abrupt changes in the market’s direction also pose a risk, and swing traders may miss out on longer-term trends by focusing on shorter holding periods.


George thinks that, most likely, the price of this stock will rise in the short-term. Therefore, he decides to enter a trade to follow the upward trend to the point that the stock price stops rising. To realize a profit, George should exit the trade before the stock price starts swinging downwards.

However, that’s not to say that one is inherently better or more profitable than the other. No trading strategy is foolproof and no strategy can ever offer a one-size-fits-all approach to trading profitably. Swing trading might not be as stressful as day trading, but don’t let that be an excuse to be lax in your approach.

From basic https://bigbostrade.com/ terms to trading jargon, you can find the explanation for a long list of trading terms here. The value of shares and ETFs bought through a share dealing account can fall as well as rise, which could mean getting back less than you originally put in. Our experts choose the best products and services to help make smart decisions with your money (here’s how).

How Does Swing Trading Differ From Day Trading?

Retracement trading involves looking for a price to temporarily reverse within a larger trend. Price temporarily retraces to an earlier price point and then continues to move in the same direction later. Swing traders also have access to a margin or leverage of 50%. This means that if the trader is approved for margin trading, they only need to put up $25,000 in capital for a trade with a current value of $50,000, for example. Trade positions are subject to overnight and weekend market risk.

Strictly Necessary Cookie should be enabled at all https://forexarticles.net/s so that we can save your preferences for cookie settings. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. The amount needed depends on the margin requirements of the specific contract you’re trading.

trading requires

On the other hand, risking $1 only to make $0.75 isn’t quite as favorable. Typically, swing trading involves holding a position either long or short for more than one trading session, but usually not longer than several weeks or a couple of months. This is a general time frame, as some trades may last longer than a couple of months, yet the trader may still consider them swing trades. Swing trades can also occur during a trading session, though this is a rare outcome that is brought about by extremely volatile conditions. This has long been regarded as the foundation of technical analysis for forex trading.

The breakout strategy, for example, is where traders try to take a position in a stock before it breaks resistance levels. The big hope is that it will explode, and traders want to ride the momentum. Swing trading is all about trying to identify significant price swings. While there are a number of indicators and stock screeners like StocksToTrade that can help you identify these opportunities, nothing is ever guaranteed.

It is similar in nature to RSI and is a key factor in knowing the exact swing or trend of the security prices. Moreover, using a stochastic oscillator, one can contrast the net price range of securities during a certain period with their closing prices. Furthermore, if the security falls in the overbought zone, then it is most likely to reverse into a downtrend and vice versa. Hence, the oversold zone or overbought zone in the relative strength index indicates the reversal of trend.

When the general trend is bearish, you short the market when the prices are high and close the trade at the swing low. Usually, 30 and 70 are the ‘magic’ numbers that traders look to as indications of oversold or overbought conditions. By combining the RSI with Bollinger Bands®, swing traders can gain more confidence about the trend’s direction.

How We Make Money

Swing trading often come at higher commissions than overnight trades. Since trades stay open overnight and often over the weekend, swing trades can be exposed to price gaps. When earnings reports or market news happens during after-hours, a trader can miss the opportunity to stop loss. If you have full-time employment, swing trade is a common choice for investors wanting to make a profit on the side without interfering with their current career. You can save time by setting alerts for your watch list and setting a stop loss and take-profit order for the positions you enter. When it comes to swing trading, the approach should be rather straightforward.

In scalping, traders monitor the tick chart or the 1 to 5 minute chart, whereas swing traders track daily and weekly charts. It is a solid basis of price action for buying or selling securities for traders. Volume discloses the actual strength of the ongoing trend of a security. As per convention, if the trend’s volume is high, it is more robust than a trend with a weak volume. Fibonacci RetracementThe Fibonacci retracement is a trading chart pattern that traders use to identify trading levels and the range at which an asset price will rebound or reverse. The reversal may be upward or downward and can be determined using the Fibonacci trading ratio.

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