By swing trading, you are taking advantage of short and medium-term gains. It’s a technical analysis tool that will help you spot trading opportunities. Hence, it will be easier to determine what to do at a specific time.
If you practice swing trading options, you’ll benefit from market movements within days or weeks. But success depends on how much you know about the strategy. Therefore, you must take the time to learn the fundamentals.
What Is Swing Trade?
A swing trade is a trading technique that holds a position for a few days or weeks. In addition, it’s an active strategy that capitalizes on market sentiments. Consequently, the latter helps identify the best entry and exit levels.
Further, swing trading allows buying and selling stocks when indicators point upward or downward. It determines if the stock has momentum. In addition, it also identifies the best time to hold on or let go.
More so, swing stocks rely on various technical indicators. As a result, these indicators provide a vivid picture of trend direction and patterns. Not to mention, it shows possible short-term changes in trends.
Swing Trading Strategy
As you master the fundamentals of swing trading, note the different strategies, including those I’ll briefly discuss below.
It determines levels of support and resistance. Many people will use this strategy in determining market reversal opportunities.
Support and Resistance Triggers
A support level indicates a strong buying market that overcomes selling pressure. On the other hand, resistance happens when selling pressure dominates buying pressure. As a result, the price reverses from an uptrend.
This strategy relies on your ability to identify stocks showing a strong trade and trading within a channel. You must trade within the trend. Hence, you must open a sell position when the price is in a downtrend.
From simple to exponential, moving averages are technical analysis tools that help traders make well-informed decisions. It identifies bullish and bearish crossover patterns. This way, you will know buy and sell signals that will influence your next move.
Swing Trading vs. Day Trading
While swing and day trading share many similarities, they also have various differences. Among others, one thing that differentiates the two is the timeframe. Day trading requires multiple trades in a day. In contrast, swing trading has multiple trades a week.
More so, another difference is the time and effort the trading strategy requires. Day trading requires your constant attention. It requires meticulous monitoring and frequent trading. On the other hand, you can swing trade without giving your full attention. It’s common for swing traders to have other jobs.
How to Swing Trade Stocks
One of the most important is to use a swing trade stock screener. The latter helps narrow down your choices by identifying stocks with the potential to give you profits. It filters the market, minimizing the time and effort you need to exert.
Aside from choosing the best swing trade stocks, you must also have the best risk management strategies. For example, set a take profit or stop loss order.
Lastly, keep an eye on your position. It will let you know the changes in market sentiments. Hence, you can determine your next moves.
Example of a Stock Swing Trade
One of the best examples of swing trading the stock market is using the Fibonacci retracement. It has three crucial points — entry point, exit level, and stop loss. Your swing trade must consider these elements.
In most cases, such a strategy involves a one-week timeframe. Further, the exit point and stop loss level don’t have to stay at a specific price. The occurrence of various technical set-ups will trigger them.