Swing Trading Explained

swing tradingSwing trading involves trading stocks and shares in which positions are kept for more than a day. The majority of fundamentalists are swing traders because it takes several days for corporate fundamentals to cause a rise in price to make a profit.

This definition has been simplified. In most cases, swing traders are in between day traders and trend traders. Day traders will never hold their stock for longer than a day. Day trading can last a few minutes or a few hours but that is it.

A trend trader looks into the fundamental stock trends over time and could hold onto stocks for weeks or months.

This long term trading can lead to good profits. Swing traders hold onto stock for longer than day traders but not as long as trend traders. They will make a trade based on the stock’s intra-week or month predictions whether they are good or bad.

The Best Stock

The way to become successful at swing trading involves choosing the best stocks. The right stock choices include active large-cap stocks on the important exchanges. In a market that is active, these stocks will swing between highs and lows. The swing trader will rise with the stock for a few days or weeks and then go to the other side when the stock switches direction.

The Best Market

When it comes to the two markets which are the bear market and the raging bull market, this type of trading is very hard compared to a market that is not as extreme as either of these. In a bear or bull market, stocks will move based on the momentum of the market. The right strategy involves trading due to the longer-term trend.

A swing trader will work best in markets that are not moving or going anywhere. This market happens when indexes rise every couple of days and fall for the next few days only to rise again and fall again repeatedly. Months may pass without any change in major stocks and indexes, but a swing trader has learned how to catch the short-term changes at times within a channel.

The only way that a swing trader or a trader that is working on long-term trends can be successful is to know the market type that is being experienced. Trend trading would have worked great for the bull market that was around at the end of the 1990’s. Swing traders could see the best results in 2000 and 2001.

The Baseline

Many people have studied the fact that historical data shows a market that is just right for swing traders will have liquid stocks that tend to trade over and under a baseline value. This is explained on the Exponential Moving Average (EMA) chart.

A well-known writer named Dr. Alexander Elder discusses his understanding of stock’s rise and fall behavior around the baseline to talk about the swing trader’s goals to buy normal and sell mania. After the swing trader has figured out how to use the EMA to find the usual baseline on the stock chart, he or she can follow the baseline when stocks are rising and falling.

Swing traders not only want to experience a home run with one trade, but they also worry about the right timing to purchase stock when it is at its lowest point and sell it when it is at its absolute highest point. In the ideal environment for traders, they wait patiently for the stock to reach the baseline and then figure out its direction before making a move.

It can get a little harder when there is a strong uptrend or downtrend in the works. The trader could go long as the stock falls below its EMA and have to wait for the stock to rise in the uptrend. The trader may short a stock after it has risen above the EMA and be ready for it to fall if the longer trend starts to go down.

Making Profits

buy sell holdWhen it is time to make a profit, the swing trader will need to leave the trade at a close proximity to the higher or lower channel line without being to precise. This could end up costing the trader to miss an incredible opportunity. In a strong and healthy market when a stock is making a good directional trend, traders can be patient.

The trader can wait for the channel line before taking in their profit in these markets. In a weak market, the trader may want to get a profit before the line is reached. This happens because in some cases the direction could change and the line may not get hit in that particular swing movement.

The Final Summary

Swing trading is actually one of the best trading styles out there. The trader that is just starting out could benefit from this type of trading style to begin with. There are many advantages to it and beginners may even enjoy it. This type of trading still allows for traders to make a huge profit in the short or long term.

Swing traders tend to see sufficient feedback based on their trades in just a short amount of time. In many cases, they will see results in just one or two days. This is enough to motivate these traders and keep them interested in making money this way.

In short, swing trading can be the perfect way of trading stocks for many people as it offers the perfect medium between trend and day trading.