Swing Trading Definition: Learn the Fundamentals of a Popular Trading Strategy

Trading requires a careful approach to maximize yields. It isn’t a simple guessing game. Various techniques are available, each with its pros and cons. Among others, one of the most popular is swing trading.

Learn more about the swing trading definition in this guide. We’ll discuss swing trading meaning and examples. Further, we’ll compare it with day trading. After reading this guide, you can decide whether it’s a good strategy.

What is Swing Trading?

In a nutshell, swing trading is a speculative strategy that allows investors to decide whether they will buy or hold an asset.

More so, understanding swing trade meaning requires looking at its timeframe. It holds positions for more than a day. Hence, the holding period is short to medium-term. While it is usually a few days, it can also take several weeks.

Swing stock meaning is the same as swing trade meaning in forex. The same is true with other assets. The aim is to take advantage of market price movements or swings.

However, the gains from this trading strategy can be small because of its focus on short-term trends. Nonetheless, you can become profitable when you’re consistent, even with small returns.

How Does Swing Trading Work?

Understanding the swing trading definition also requires learning how this speculative trading strategy works. You’ll find it easier to apply the technique in real life.

Swing traders will look for two things in an asset. First, they want high-volume stocks or those with lots of activity. Second, they also search for high-volatility stocks or those moving a lot.

Next, swing trading requires a chart analysis. It can be intimidating for newbies, but this is crucial in analyzing market trends. You can use various indicators, including the following:

  • Relative strength index
  • Moving average
  • Volume and trend lines

It’s now time to set your entry point. You’ll identify the target entry price and put a stop-loss order. The latter is essential for minimizing losses.

Many day traders use daily charts to determine entry and exit points. For instance, these charts can show movements within the last 24 or 48 hours. However, you can also use shorter time frames, such as hourly charts.

It’s also important to be aware of the risks. One of the most common is a gap risk. It happens when an asset’s price sharply increases or decreases based on the news when the market is closed. Such can have a catastrophic impact on your trades.

Swing Trading Example

Now that we talked about the meaning of swing trading, let’s discuss an example. This will make it easier to understand how this speculative trading strategy works.

Let’s assume you’re looking at the stock performance of Company A. For some time, it has been moving up. In this case, buying at the support level can capture an upward swing. Meanwhile, putting a stop-loss order at a price above the lowest movement can also help you make the most of an upward trend.

Returning to the example, swing trading requires continuous monitoring of Company A within a few days. Consider it an exit signal when the price moves to the resistance level. When it reaches the intended exit point, sell immediately to profit from the trade.

Swing Trading vs. Day Trading

One of the main differences between swing trading and day trading is the holding time of your position. In day trading, you’ll close your position by the end of the trading day. On the other hand, day trading involves at least an overnight hold. It can last a few days.

The two also differ in terms of trading frequency. Swing trading makes multiple trades in a week. In contrast, day trading makes several trades in a day.

Meanwhile, they are different in terms of profit and loss potential. Your gains and losses will accumulate slowly in swing trading. On the other hand, they accumulate quicker in day trading.


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