There are a lot of cases when a trader opens the intraday position and catches that desirable wave of the emerging profitable trend. Till the end of the day, it becomes pretty clear that there is a high potential of the positive scenario of the trend continuation with the reasonability of holding a position for more than one trading session. When it comes to such short-term methods as intraday trading or scalping, traders are involved in opening and closing positions within the same trading day, which minimizes the risk of losing but at the same time reduces the potential chance of making a profit.
Is there the golden mean? Swing trading takes the position somewhere between intraday and positional types of trading, where the positional one stands for the possibility of keeping the holding period from several days to several weeks which eliminates the short-term market instability and raises the possibility of focusing on the bigger picture.
Understanding swing trading
What is swing trading? It has nothing to do with the specific trading strategy, it’s more about being a trading method, a trader's behavior pattern. Technical indicators, levels, and candlestick patterns are just tools that determine the right time for entering the market and are always selected according to the traders’ individual trading objectives. Traders use the swing to minimize the possible market risk during price fluctuations. This approach is considered to be a good choice for those who don’t have enough time for intraday trading but want to use the possibility to gain profit when such opportunities arise. Swing traders tend to work with the underlying trend of the chart - an uptrend as an example.
What is the process of making a decision to buy? Traders can be guided by the following rule: buying at the moment of correction and taking the profit at the moment of the cancelation of the main trend movement. The break-through of the support level will signal the position fixation. Such traders usually consider long-term fundamental trends with the possibility of holding a position not just for several hours, but also for several days or even weeks - everything strongly depends on the duration of the trend. Market sentiment is that very same thing that has a direct impact on the duration of the trend. This general prevailing attitude may reflect the positive economic reports, change of crude oil prices, or the inflation rate level - actually, there are a lot of highly influential factors.
This trading method is considered to be a good choice for those who don’t have enough time for intraday trading but want to gain profit when such opportunities arise.
Swing trading is a part of the market cycle. For a successful implementation of this method, it’s vital to prioritize technical and fundamental types of analysis that will broaden the market vision and allow you to act flexibly.
Technical analysis stands for pattern determination on a price chart, so the traders won’t analyze why there is such a trend on the market but they’ll just adjust their strategies according to the market movement. When it comes to the fundamental one, things aren’t that common and simple, as it’s about assessing many layers of the important world events such as the political situation in the country, economic development, or even weather conditions that may affect currency prices.
Your analytical approach will define what methods are the winning ones to meet the objectives of your swing trading strategies. Whether it’s a swing trading in a stock market, forex market, or commodity market - remember that your strategy depends on the type of market where you’re trading in. This trading method as well as others requires having a plan. Don’t even start without it.
For example, let's take a look at BTC/USD. We can observe the formation of an uptrend. To make a decision about entry points, we will analyze the trend line and the moving average. As you can see, it’s possible to get profit by accurately identifying the trend.
Swing trading advantages
- Clearly defined boundaries. Successful swing traders are more technical traders who tend to identify the zone where the market scenario will work against their elaborated strategy. This ensures that the trader knows exactly when the trading will be unprofitable and what steps need to be taken to derive profits from swing trading systems. This is how extensive trading expertise narrows down all possibilities of losses;
- It’s an opportunity to make money by having an understanding of the global direction of the market. Having their plan prepared and tested traders look for the right trends that can be potentially profitable and win their part in any case;
- There is no need to constantly monitor charts and open trades. Of course, swing trading can be practiced on lower timeframes, but it won’t be that effective. So, we can consider this type of trading as the one that isn’t associated with high energy consumption and emotional stress;
- Market volatility means income-generating trading. Financial markets never choose one and the same direction of movement, so swing trading allows you to use this feature that gives the green light to buying or selling.
Swing trading risks
- Complexity. Everything seems to be pretty clear and understandable, but there might be a lot of traps and pitfalls if the trader struggles to analyze the actual state of things sticking to his/her own analysis. There might be thoughts to wait out a market storm and, in the long run, they fail to close a position with profit just because of the popular belief that the market recovery is fast. Not always, it depends on many factors which have to be thoroughly analyzed;
- If we talk about swing trading we mean the possibility of holding the positions during a long period of time, so it means that the traders have to deposit more.
How to swing trade?
- If the position incurs losses, it's advisable to close it at the first opportunity that presents itself to be able to open a more profitable position. Never be hungry for money as you’ll just blindly follow the market direction with the hope that the situation will become better;
- There is no need to open positions with the start of the trading session or at the time of significant events in the market like news releases as there is a risk of the main trend reversal;
- If you’re working on high timeframes it will be a good step to work with its history, determine significant levels and build trend lines. Consider assessing at least a year of the timeframe history;
- Consistency will save you. Remember that there is such a nice thing as your plan and go back to it every time an important decision is on the horizon;
- If you haven’t reached your trading goal yet and continue to make a profit, it makes sense to prolong your position. Wait for the price to reach an objective point;
- Even if the position isn’t that profitable as you expected it’s better to consider closing it at the first signs of the trend discontinuation in order to minimize risks;
- Consider using and changing the stop-loss to secure the trade. It will greatly help with a fast-moving market and prevent your positions from unplanned market turns;
- A profit/loss ratio should not be less than 3:1;
- In case of any doubts - leave the market, but remember that any of your ideas or suggestions should be strongly based on real facts and analysis. It means that the emotional part has to be excluded from the decision-making process.
Day trading versus swing trading
Day trading stands for opening and closing several positions during one trading session. It means that traders are sitting in front of their computer screens for hours following the trend development. Day trading also requires traders to be more responsive and focused when they’re working with financial markets since it involves conducting several trades in a relatively short period of time, so they’re aiming to get to their tops for a limited period of time.
Swing trading is different. It’s when the trader can open the position and close it after a few weeks, so they are actively practicing overnight trading. This allows them not to monitor the progress of their trades for days or even weeks, everything depends on traders’ analyses and market conditions. Yes, it can be risky, but what isn’t risky when we talk about the financial market? Ultimately, it all comes down to one thing - your trading expertise.
Swing trading allows traders not to monitor the progress of their trades for days or even weeks.
As a methodology, swing trading takes care of your income and the time that is spent on trading. It has a flexible analysis system, which helps to adapt the trade to your strategy and its objectives. It’s advisable to open your positions only when there is a strongly marked trend, and vice versa, if the trader observes a relatively "flat" market movement then it’s the signal to wait. The more you practice, the less gaps there will be. What are the best swing trading strategies? The ones that are yours.