What is swing trading?
I am sure that a lot of you have heard the term swing trading. For me it is a cool trading strategy, where you take advantages of market fluctuations. Unlike day trading, where you do not want to keep the stock at the end of the day, with swing trading you hold the stock for an extended period (usually 5 – 20 days, or even more). According to Investopedia.com the holding period can range between a few days to several weeks.
Why is it so appealing?
The initial time investment to find the right stock that experiences big fluctuations in price is large. But later you can invest 30 minutes to 1 hour in the evening to plan your orders for that week/s. Then you set your opening order, stop loss and take.
When the market opens you interpret what is happening with the stocks and you determine if you want to proceed with your orders.
I usually find a stock that had a significant loss or where the uptrend is due to some report. When I have interesting stocks, I try to read a bit about the situation. Also I try to find apps that report on these stocks. This helps me filter out the stocks. Mainly you do not want to invest into a company that is failing.
If you look at the stock graph below, it is visible that the stock has some level of support when it is good to buy it and some level of resistance when one should sell it. You can use technical analysis to determine where a good point is to buy. But keep in mind, past performance is not a indicator of future performance.
If we focus on a smaller period it is visible that you can make money by buying the stock when it reaches the red line and selling it when it is near the green line. Also, it is noticeable that the stock has a swinging behaviour. It is going from a high to a low and vice versa. This is why this type of trading is called swing trading. Because you are trying to take advantage of the swing of the stock price. These green and red lines are just a representation of technical indicators.
Pros and Cons
It is visible that you can open a position on Day 1 and on Day 3 have a profit of 10-20%. The negative side is if you do not know when to sell, your profit quickly diminishes.
You also do not pay that many fees like day trading. Unlike day trading you do not have to constantly monitor your stock.
Conclusion
Looking at Swing Trading it is visible that it offers a time efficient way to profit from price change in the short-term. Imagine you invest in a stock in January, by February the stock price has risen by 30%. In July it drops to the initial 10% increase. At the end of the year the annual price increase is 15%.
In the case that you invested only in January your profit would be only 15%, but in the case that you tried to follow the swing of price, your profit would have been a lot bigger.
Resources:
[1] – https://www.investopedia.com/terms/s/swingtrading.asp
[2] – https://www.etoro.com — Graphs were take from eToro