Many trading strategies rely on technical analysis to work. You cannot simply learn how to trade USD JPY or invest on Apple shares and expect guaranteed profits without using technical analysis because your trading decisions need to be based on factual information and not just your gut feel. However, there are also those strategies that make use of fundamental analysis. Markets consider swing trading as one of those fundamental-reliant strategies.
What is Swing Trading?
Swing trading is a strategy that lets you catch gains in a stock or any asset over a period of a few to several days.
Swing traders also use technical analysis, but they are often considered fundamental traders since they take days to finish trades.
So, basically, you hold either a long or short position for more than one session. However, it usually doesn’t take more than several weeks or a couple months.
The goal is to catch a chunk of potential price move. Although some trader may want volatile assets that show a lot of movements, others often choose more stable stocks.
What are the Benefits?
Swing traders can enjoy the following benefits if they do the strategy well:
- Swing trading requires less time to trade
- Swing trading maximizes short-term profit potential by locking in the prices of market swings
- With swing trading, traders can depend on technical analysis to simplify the trading process
What are the Dangers?
Now, if the trader fails to do the swing trading strategy properly, he or she may suffer the following risks:
- The trade positions can suffer from overnight or weekend risks.
- Sudden market reversals can often lead to huge losses.
- Swing traders may sometimes miss long-term trends if they favor to much the short-term market moves.
Tactics to Use
To ensure that swing trading will work out for you, you can use a variety of tools and tactics.
Usually, a swing trader tries to search multi-day chart patterns. These patterns include:
- Moving average crossovers
- Cup-and-handle patterns
- Head-and-shoulders patterns
- Reversal candlestick
All of these tools can help you come up with a solid and well-thought out trading plan. On top of that, every swing trader can hatch a plan and strategy that will give them an edge over many trades.
Is it for You?
It’s not possible to find one trading strategy that will reap great benefits for all kinds of traders. You might have to check whether this strategy really fits your personality.
- If you are comfortable with taking fewer trades but more careful in setting up the trades, swing trading is for you.
- If you are okay with having large stop loss orders, then swing trading is for you.
- If you are patient and you can maintain a calm, straight face even in times of market turbulence or when trade goes against you, swing trading is really for you.
- If you like instant gratification in knowing whether you’re right or wrong, then swing trading is not for you.
- If you get jittery and angry when the trade goes against you, then swing trading is not for you.
- If you can’t spare maybe a couple hours daily to see how the market is doing, then swing trading is not really the best strategy for you.