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What Is Swing Trading and How to Master It

What Is Swing Trading and How to Master It
The Siliconreview
01 March, 2021

 

So, you have broken into the world of trading, but what do you do now? How do you make the most out of your new position? As a trader, how do you go about your everyday routine? What kind of trader do you end up becoming?

The point of this article is to shed some light on this stage of your trading career. We will start off by taking a look at your immediate options and then delve deeper into swing trading and some of the strategies you have at your disposal.

Day Trading vs. Swing Trading

If you have spent some time in the trading circles, you will surely have heard of day trading and swing trading. Most traders fall into one or the other group, but what is the difference, exactly? Both day trading and swing trading seek to profit off short-term stock movements instead of long-term, so what are the advantages of each?

Day Trading

Day traders, as the name suggests, make most of their trades on a single day. These trades can number in dozens, based on how much work the trader is willing to put in. Every trade involves studying complex technical analyses and following lots of charts to predict the best possible decision.

As you can imagine, this makes for a very demanding work schedule. Day trading is a full-time job and requires you to give your utmost. You have to spend days glued to a screen, waiting and watching the market, anticipating the trade you want.

Swing Trading

Swing trading, in contrast, happens over a period of a few days or weeks. It involves identifying trends of movement in stock over time. Since swing trades take time to work out, swing traders can afford to have a primary job because they don’t have to spend every waking hour studying and researching.

The wider time period is why swing trading is such an attractive prospect. Anyone with knowledge of trading and enough capital to make investments can try swing trading. Many traders choose to be both day and swing traders to maximize their profits.

Best Swing Trading Strategies

Now that we have a better idea about what swing trading is and what makes it advantageous, we will take a look at the strategies you can employ to make the most out of your swing trades.

Hammer and Inverted Hammer With a Pin Bar

Whenever you see this pattern, know that the correction is going to end soon. A correction that descends usually ends with a candlestick - a pin bar with a short body and a long tail. This usually happens when dealers attempt to press the price down over the trading period, but by the end, the price returns to normal.

You know you are looking at a strong signal when the pin bar has a green candlestick body in a downward flow, while also having a red candlestick body while going up.

Having a long tail is not necessarily the indicator for this and is not always needed. If every candle has a smaller body than the one above it, then you can safely conclude that the correction is entering the end phase. You can enter a trade in the direction of the trend at the next reversal.

Swing Failure Pattern

A Swing Failure Pattern (SFP) is one of the major patterns used by swing traders to generate the liquidity they need to push prices in the opposite direction. They do this by identifying stop-losses above a key swing high or below a key swing low.

A swing low is the point on a chart where the price forms the standard V-shape we all know and love. Once it forms the downward apex, the point of the V, it swings back upwards.

A bullish swing failure pattern is one where after dropping past a key swing low, the price closes back above it. This allows for lots of opportunities for long trades.

Other Rules to Keep in Mind

Consider these tips for your own trading activity:

  • The key factor governing swing trading is that you need to keep your trades open for the longest possible time. Yes, conventional wisdom dictates that you ought to exit the trade at the first reversal, but by using stop loss, you can keep all trades open until the trend changes direction.
  • Another reason why you should not trade over short intervals is that this can cause unpredictability and imbalances in the model.
  • Never trade during periods of high volatility or when the market is flat.
  • If you have losing positions, close them all at night. Your goal is to maximize while also minimizing losses, so take care of that as well.

Conclusion

We hope that this article gave you enough insight and armed you with enough knowledge and strategies for you to go forth and have fun with swing trading. Be careful, have fun, and make yourself some profits!