2023-06-16 15:00:15
Swing, swing, swing from the tangles of my heart – You know this song, right? It just might be the theme song for swing traders (NOT swingers) and swing trading. This trading strategy is probably one of the most popular around. Professionals use it and beginners choose it among the first trading strategies they learn. But what is so special regarding it? How does it differ, for example, from day trading? What are the best swing trading strategies? Read on to find out more.
What is swing trading?
Many traders view swing trading as a strategy dependent on technical analysis. But many others define it as a type of trading that falls under fundamental analysis. So what is it really? The safety zone is probably halfway between the two approaches. Technical analysis helps traders spot trade opportunities by examining daily charts. Fundamental analysis, on the other hand, is used to analyze price trends and short-term prospects. This strategy involves maintaining a long or short position for more than one trading session. In general, the swing trader holds his position from a few days to several weeks. The idea is that the trader should capture some of the potential price movement. In fact, you determine the direction in which the price is likely to move. You enter a trade and try to capture most of the moves. Sounds easy, doesn’t it? But there are considerations to take into account.
Assets
One of the most important considerations is the type of asset you are trading.
Assets that are relatively more sedentary than others are not preferred by active traders. In contrast, volatile assets oscillate between highs and lows. Swing traders love this type of asset. For stocks, these are large-cap stocks, which you can find on major stock exchanges. There are also many currencies in the forex market that you can trade.
The steps
Swing trading works well in different market conditions, although you need to be savvy enough to determine the type of market you are in. In extremely bullish or bearish markets, even the most active assets may not show the same highs and lows. During an extreme bull or bear market, prices usually only move in one direction.
Importance of Exponential Moving Averages
Exponential moving averages (EMAs) are a variation of simple moving averages that give more weight to more recent data. They are the best allies of the swing trader. These averages, when plotted on the charts, help visualize support and resistance levels. Regarding the type of market, they also tell you if the market is bullish or bearish. Crossover patterns offer price points that you can use to enter or exit the trade. Bullish crossover patterns occur when the price of the asset crosses above the 9-, 13-, or 50-day EMAs. This crossover suggests that a reversal to an uptrend is on the horizon. In contrast, bearish crossover patterns occur when price breaks below the 9-day, 13-day, or 50-day EMAs. This crossover suggests a reversal towards an uptrend.
Swing Trading et Day Trading
This trading strategy is very similar to day trading, in which the trader also tries to capture movements in the price of the asset. However, day trading is not at all like swing trading. These are two different trading styles that may suit traders differently.
Capital requirements
The capital required varies depending on the type of market in which you operate. A day trader who trades in the futures market will need different capital than a swing trader who trades in the stock market. For example, in the United States, day trading stocks will cost you at least $25,000. In contrast, there is no legal minimum limit for a stock swing trader. However, the latter might want to set aside at least $10,000 in his account if he really wants to make a profit.
Trading periods
Both day trading and swing trading are active trades. However, they require different trading times. Day trading generally takes much longer. A day trader trades regarding two hours a day, not including time for trade preparation and review. On the other hand, swing trading takes much less time. It usually only takes around 45 minutes a day to find new trades and update orders directly from the charts. And since swing traders hold their positions for several days or weeks, they sometimes only have to check them once or twice a week. Day trading takes place when the market is open, and it is most effective only at certain times of the day. Traders are then interested in second-to-second movements that allow them to make profits.
Potential returns
Traders who want to make money quickly through compounding returns use day trading. But it is not that simple. You must earn twice what you lose in losses, while winning 50% of your trades. By trying to achieve this, you also risk losing faster than winning faster. On the other hand, swing trades are slower to accumulate gains and losses. But you still have the opportunity to make trades that allow you to make considerable gains.
Time, Practice and Skills
Both of these trading styles require a lot of time, practice, and skill to make consistent profits. As with all styles, the success of these strategies relies on consistent, proper, and disciplined execution. Your personality also adds to the mix. Day traders are generally stress resistant people, able to stay focused for long periods of time. Swing trading, on the other hand, takes place at a much slower pace. You may still feel high stress, but not as much. However, it also requires a lot of discipline and patience.
Swing trading strategies for beginners
Swing trading is not just regarding one formula. You have to learn the variations of the strategy, and once more, you need a lot of time and patience before you can make successful trades. This part of the article discusses some of the best and most popular swing trading strategies for beginners.
The trendline strategy
The trendline strategy is practically the most popular swing strategy among traders. To buy at the lowest and sell at the highest, it is indeed necessary to know the trend lines. Just draw trend lines and wait for the price to reach them. When price touches the trendline, look for bullish or bearish reversal candlesticks. Buy or sell accordingly. Simple but effective.
The floor trader’s strategy
Another simple but powerful trading strategy: the floor trader strategy. And we’re not talking regarding the floor in your home. In this strategy, you simply wait for the crossover of the 9-day EMA and the 18-day EMA. Then you wait for the price to break away following the crossover. Look for a pullback, which is when price comes back to touch either of the two EMAs. When you see a bullish or bearish reversal candlestick, buy or sell accordingly.
Range trading
You can use this strategy when prices fall within a trading range or channel, between strong support and resistance. First, you identify the market range/channel. Then you wait for the price to move below the support or above the resistance. If price breaks support, expect a strong price rejection (or close above support or below resistance). If you see such a rejection, you can go long on the next candle.
Surf the wave
As we said, there are different strategies to use depending on the type of market. A variation of the swing trading strategy can also work in trending markets. When you trade in a trending market, for example an uptrend, you want to see a deeper pullback. This is because you will have more upside room when you buy. You want the pullback to occur at least towards the 50-day moving average or beyond. First, the trend must go in the same direction as the 50-day moving average. If the market approaches this level, expect a bullish price rejection. And when the rejection occurs, go long on the next candle. Easy, isn’t it?
Countertrend Trading
As the name suggests, this strategy requires you to go once morest the wave instead of following it. So you are fighting once morest the momentum of the market. First, you need to identify a strong move towards a resistance line that removes the previous high. Again, wait for a strong price rejection as the candle forms a strong bearish close. Take a short position on the next candle, and take your profits at the next low. Of course, you need to have a powerful enough platform to implement the above strategies. Different brokers offer different platforms and tools, and this evaluation of this broker might have what you are looking for.
Conclusion
For novice traders, swing trading is one of the best trading strategies to learn. Of course, she’s not perfect. Nor does it promise a guaranteed profit at all times. Nevertheless, this strategy is popular for good reasons. It offers many ways to learn the technical and fundamental aspects of trading. At the same time, traders can use it in different market conditions.
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