What is Swing Trading?

Swing trading sits in the middle of the continuum between day trading and trend following. Swing traders hold a particular stock for a period of time, generally between a few days and two or three weeks, and trade the stock on the basis of its intra-week or intra-month oscillations. Swing traders are not looking to hit the home run with a single trade—they are not concerned about perfect timing to buy a stock exactly at its bottom and sell exactly at its top (or vice versa). In a perfect trading environment, they wait for the stock to confirm its direction before they make their moves.

When it comes time to take profits, the swing trader will want to exit the trade as close as possible to the upper or lower channel line without being overly precise, which may cause the risk of missing the best opportunity. In a strong market, when a stock is exhibiting a strong directional trend, traders can wait for the channel line to be reached before taking their profit, but in a weaker market they may take their profits before the line is hit (in the event that the direction changes and the line does not get hit on that particular swing).

Swing trading, while a good trading style for beginning traders, still offers significant profit potential for intermediate and advanced traders. Swing traders can realize sufficient rewards on their trades after a couple of days, which keep them motivated, but their long and short positions of several days are of ideal duration so as to not lead to distraction. By contrast, trend following offers greater profit potential if a trader is able to catch a major market trend of weeks or months. On the other hand, trading dozens of stocks per day (day trading) may just prove too great a white-knuckle ride for some, making swing trading the perfect medium between the extremes.

Next: Why is Swing Trading right for you?

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