Swing trading entails maintaining positions for days or weeks at a time. It is based on the idea of capturing a bigger trend and so has little to do with minute-by-minute variations.
It distinguishes itself as a medium-term and moderate trading approach that falls midway between long-term investing and day trading. It’s great for a newbie who wants to be more proactive in the market but doesn’t have time to sit in front of the computer all day monitoring stocks.
Swing traders, on the other hand, can profit from market volatility and liquidity. They’re similar to day traders, however they have a longer time horizon and look for opportunities to open and sell positions rapidly.
There are a few distinctions between the two as well. Swing traders typically hold fewer positions and hence pay lesser trading or transaction costs, despite the fact that the potential for profit and loss is significantly larger. They’re not seeking to make a lot of money on a single trade.
Swing trading also has the advantage of being more flexible than day trading. Only an hour or two a day is required to monitor open positions and analyse technical indicators.
Swing trading is thus a viable alternative for many people who desire to make money as a side job. A salaried employee with a 9 to 5 work can simply combine their jobs with side trading to produce income flow. It also aids their trading mindset.
Another benefit is that your money is not locked up for long periods of time. Unlike long-term trading, when it can be difficult to exit a losing position, you can simply accept a minor loss and move your money to another trade.
Another advantage of swing trading is that it allows you to diversify your holdings. Another advantage is that it does not agitate your mind as much as day trading, which requires you to make judgments in milliseconds. It relieves the pressure of time, allowing you to make more calm and educated decisions.
Swing trading has certain drawbacks as well. They must pay overnight funding fees, which day traders are exempt from. Day trading is more profitable in general since the profit potential is greater.
This does not guarantee that a day trader would profit more than a swing trader. It necessitates a whole new skill set: day traders must be quick and nimble, making split-second decisions about whether to hold or quit a position while the market is moving against them.
Swing trading may provide fewer profits, but it also has the potential to produce higher rewards. They hold positions for far longer, which means they have a better chance of making a profit.
Swing trading’s return profile has already been examined. Let’s take a look at the dangers as well.
Because swing trading positions are susceptible to overnight and weekend open positions, price gaps may occur, particularly when earnings reports or news are released after market hours. As a result, a trader’s stop loss is made ineffective.
It can also be tough to choose the proper stocks. Blue-chip stocks typically offer fewer opportunities due to their lower volatility (although some swing traders have the exact opposite viewpoint, which is also valid!).
Swing traders must make the most of the limited opportunities in the medium time frame, as opposed to day trading, where there are multiple price movements in a day in multiple stocks, and long term trading, where the price moves over a longer time frame, so swing traders must make the most of the limited opportunities in the medium time frame.
It is sometimes preferable to play some stocks for the long term rather than relying on a single swing. Furthermore, even for established pros, let alone amateurs, timing the market for a swing is a difficult task.
If you wish to learn more about swing trading, check out this course by FinLearn Academy on Swing Trading with price action and harmonic trading patterns. You will be able to learn to swing trading from the basics and master it with the advanced swing trading strategies
