Swing Trading -- Basic Principles

by Amanda Harvey



Swing trading is a type of trading used in the financial markets which attempts to realize a gain from price movement within a fairly short period of time. This type of trading typically involves the holding of a position for between one and several days, making swing-trading a slightly longer term form of trading than day trading, in which positions are generally closed within a day and often within minutes.

Swing-trading is, as its name implies, based on catching hold of a movement in price which has already commenced, and swinging with the movement until it is ready to swing back. Spotting a price movement which has just commenced to swing in either an upward or downward direction is part of making a successful swinging trade. This beginning of a swing is the time to enter the trade. The next goal is to identify the moment before the movement reaches its turning point, and to exit the trade at this time.

To benefit from this method of trading, it is important to focus on stocks that signal trends or patterns of short-term price movement. Technical analysis is suitable for identifying these opportunities, as the goal is simply to pinpoint the early stage of significant momentum in price movement. Fundamental analysis and intrinsic worth are not relevant to the swing trader. For a short term gain based on price movement, it is not necessary to know whether the asset is on a trajectory of growth. This type of information is applied to longer term investments, which fall into the categories of position trading or buy and hold investing, and are typically held for months or years before a profit is realized.

How to Choose Stocks for Swing Trading

• A successful swing-trader will usually target stocks that tend to move in repeated or cyclical patterns. By studying these patterns, it is possible to identify the likely point in which a trade may be successfully entered and exited.

• It is best to avoid extreme market conditions with either bull or bear characteristics, as these markets do not exhibit the fluctuations normally displayed by a relatively stable market.

• One tip when choosing stocks with which to apply swing-trading is to focus on stocks with a high volume of trading. This active trading scenario provides the best likelihood of continued momentum in either an upward or downward movement.

• There are software programs available that help a trader to select possible stocks to trade, based on various criteria. These screening programs are available in free versions, or paid upgrades that offer more personalized features.

Benefits of Swing Trading

• Swing-trading does not require as much time commitment as day trading, but can provide returns more frequently than long-term investments, making it a great ‘part-time job’.

• Once the swing in one direction has reached its turning point, the trader may often benefit again by trading in the opposite direction.

Drawbacks of Swing-Trading

Volatility occurring outside of market trading hours may trigger stop-losses when a position is kept open as it is with swing trading.

• It is possible to misread trends, and to enter a trade too late, causing the trade to fail.


Swing trading, like most types of trading, offers opportunities for traders who are well informed, realistic in their expectations, and disciplined in their trading practices.


”Success is simple. Do what's right, the right way, at the right time.”

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