Swing trading is a form of trading where positions are held for longer than just one day. While similar to day trading, it has some key differences, including rules, position length, and more.
Definition of Swing Trading
Swing trading is a style of trading with the goal to make gains over a few days or weeks using technical analysis. Swing traders also use fundamental analysis for trends and patterns.
Swing Trading V. Day Trading
Swing trading is similar to day trading. The main difference is that swing trading occurs over more than one trading day, and thus not subject to the pattern day trader rule. Swing traders may hold onto a position for a few days, or even a few months.
Day trading brings results the day you make the trade—so your return or loss is more immediate. A swing trader’s return or loss happens over a period of days, which can be affected by after-hours trading and overnight news catalysts.
Since swing traders expect trades to last over multiple days, they don’t need to consistently be looking at their trading setup nor the trade. Whereas day traders will typically be at their computer for as long as they are trading that day because their trades may only last for a few hours. Day traders also need to monitor their trades and price movement.
Swing traders can protect themselves by setting up a stop-loss to protect themselves if the trade starts to go south.
Technical analysis is a main component in swing trading. Traders need to understand chart patterns and how to calculate risk and reward. You want to identify a consistent trend in order to make gains.
Swing traders should create a plan and stick to it. While no plan will have a 100% win rate, the key is to find patterns that occur frequently to make a profit.
As with any trading strategy, you want to pick the right stocks. Many swing traders pick large-cap stocks because of the frequency that the shares are traded. Higher volume means it is typically easier to get in and out of a trade.
Unlike day trading, there is no rule that requires a certain amount of money to begin trading. However, the amount you start out with can limit the amount you make.
Experienced traders recommend having between $5,000-$20,000, depending on the type of market you are trading, such as stock, forex or futures. If you begin trading with less than that, even just a few losing trades can be detrimental to your account.
Swing trading is a form of trading that isn’t as time-consuming as day trading. It requires traders to find patterns in charts in order to make big gains over a period of time. This form of trading can be a great place to start if you are looking to be an active trader, but don’t have a large enough account or don’t have much time.
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