Swing trading is one of the most widely-practised trading styles by both retail and institutional investors alike. It is essentially a halfway point between day trading, which involves executing trades in a very short timespan, and trend trading, which involves holding onto stocks and shares for a long period of time in the hope of long-term gains.
Instead, swing trading involves holding onto positions for a few days or weeks, before selling. Swing trading, therefore, involves capitalising on intra-week or even intra-month oscillations and medium-term trends. Swing trading has often been described as a cautious approach, especially compared to more risky methods such as trading scalping.
However, this is not always the case. Many swing traders specifically target volatile assets in the belief that this is where the most significant gains are to be made. While swing trading, unlike day trading and scalping, exposes assets to overnight market risk, this is not always a bad thing, especially if you are taking a short position.
To better explain how swing trading differs from other forms of trading, let's have a look at some of the pros and cons.
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Swing trading tips for beginners
Swing trading strikes a fine balance between risk and caution that allows you to take advantage of some of the best elements of both day trading and trend trading. However, this also means that swing trading requires a unique approach that can help you maintain this balance. Swing trading can be used to trade CFDs, Forex, and just about any other asset class that you might be interested in. Here are some essential swing trading tips for beginners.
- Follow the market: Stop-loss orders are the ideal way to limit your losses. First and foremost, this is a good way of preserving your trading bank when making your first trades. Secondly, it means you don’t have to micro-manage your holdings hour-by-hour.
- Long bulls, short bears: This is pretty obvious and applies to many trading styles, but none more so than swing trading. When the market is particularly bullish, you should consider going long. Alternatively, you should explore short trading when a bear market is emerging.
- Always zoom out: While swing trading typically refers to positions that are held for two days or two weeks, you should always examine the bigger picture. Look at your data to see the long-term (i.e. year-to-date) direction of an asset before you begin swing trading with it.
- Set up a rigid stop-loss: This is incredibly important when swing trading with any type of asset. Overnight or sudden market moves can wipe out your profitability, so always set rigid and reasonable stop losses on all trades.
- Stay on-track: When swing trading, it is all too easy to begin making impulse buys just because a particular stock or currency is having a good day. However, this defeats the purpose of swing trading and is needlessly heightening your risk. Stick to your strategy.
How to do swing trading with a demo account
In order to understand the basics of swing trading and master the practice in a risk-free environment, you should first try it out using a demo account. A demo account allows you to execute fake trades based on real market data, using dummy money to help get an idea of how profitable your trading style is. Setting up a demo account with Skilling is easy. Simply:
- Go to the Skilling website and click "sign up".
- Enter your account information, such as your email and password.
- Enter your account preferences and information on what your trading interests are.
- Select "demo account" to start trading with fake money.
- You can switch to real money mode and finalise your account registration to begin real swing trading.
Swing trading strategies
Swing trading strategies are tried-and-tested ways that more established traders attempt to capture market movements and increase profitability. Here are some of the most popular swing trading strategies to be aware of:
Channel Trading
While all stocks fluctuate, there is usually an overall range of volatility that is fairly easy to calculate. This range is often referred to as a "channel". Channel trading is a form of swing trading where you attempt to capitalise on the peaks and troughs within a channel and using channel data to figure out exactly when to buy, sell, and short.
MACD Crossover
The MACD on a trading chart is made up of two lines: the MACD line and the signal line. When these two lines crossover, buy and sell signals are generated. If the MACD line crosses above the signal line, a bullish trend is emerging. If it falls below the signal line, a bearish market is developing. MACD swing trading uses these indicators to time positions.
FAQs
1. How is swing trading different from day trading?
While day trading requires a trader to complete a trade within a single trading day and often within minutes, swing trading requires you to hold a position for longer in order to capitalise on longer-term trends.
2. What are the best types of securities for swing trading?
Any securities can be traded via a swing trading strategy. However, your best option is large-cap stocks such as Apple or Microsoft. These stocks are the most commonly-traded, making it easier to determine channels and trends. Large-cap stocks also come with a huge amount of rich market data that you can use to make informed swing trades.
