Swing Trading: The Basics Of Swing Trading
When it comes to investing, itโs important to have a strategy. If you ask someone what their investing strategy is, you expect them to have an answer โ hopefully not just a shaky shrug. Some people might invest in index funds and keep their money there forever; others may choose to day trade stocks; and still others may opt for swing trading. There isnโt one right way of investing that works best for everyone. The term โswing tradingโ can be obscure and confusing at first glance. It refers to a style of trading that falls somewhere between day trading and buy-and-hold strategies when it comes to risk and time spent monitoring stocks. It doesnโt require as much time as day trading does but also doesnโt involve the long-term investment of buy-and-hold investing. If you want to learn more about swing trading then you can,
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What is Swing Trading?
Swing trading is a type of passive investing that doesnโt require an investor to actively buy and sell stocks on a frequent basis. Instead, swing traders hold stocks for several weeks or months, then sell them and move on to the next trade. In other words, swing traders donโt watch stocks like day traders do. They donโt stare at a computer screen waiting for buy/sell orders to fill. Swing trading is more like buy-and-hold investing, with the twist that you donโt hold stocks for years. Instead, you hold stocks for weeks or months at a time. In the context of investing, a โswingโ is a temporary up-and-down movement in a stockโs price. Swing traders look for stocks that experience a significant price increase, hold the stock for a short period of time, and then sell it at a higher price.
How to Swing Trade
As weโve discussed, swing trading doesnโt mean you have to swing at every stock that catches your attention. Rather, swing trading means that you look for stocks that have a big enough price swing to make trading them worth your time. - What Are Price Swings? Price swings can be significant variations in a stockโs price over a short period of time. If a stockโs price goes up or down by 10 percent or more in a single day, thatโs a large enough variation to make swing trading worth your time. - When Are Price Swings Likely? Price swings are most likely to happen when thereโs news about a company thatโs likely to have a major impact on the companyโs future. For example, if a company reports earnings that are significantly higher or lower than expected, that could lead to a price swing.
Benefits of Swing Trading
- You Can Start with a Small Amount of Capital: Swing trading is a great option for people who want to start investing but donโt want to put a large amount of money in one stock and risk losing it all. If you swing trade, you can get started with a small amount of capital and move up from there once you get some experience under your belt. - You Donโt Have to Spend a Lot of Time Monitoring Stocks: Swing trading requires you to monitor stocks but not on the same daily or even weekly basis that day traders do. You may only spend an hour or two each week analyzing stocks and deciding which ones to buy. - You Can Swing Trade Anywhere: Swing trading can be done from anywhere. You donโt have to have a high-powered trading desk in a New York City skyscraper or a fancy trading floor in an L.A. office building. You can swing trade from your home office, from the beach, from Starbucks โ whatever works for you.
Drawbacks of Swing Trading
- You Have to Be Prepared for the Stock Market to Be Unpredictable: The stock market is unpredictable in the short term. If you swing trade, you canโt predict which stocks will rise or fall and when they will rise or fall. If you try to predict the stock market, youโll probably fail. - You Have to Have Patience: You can swing trade but that doesnโt mean youโll become instantly rich. In fact, it can take years to become profitable swing trading. You have to learn how to do it right and have a bit of patience while you learn. - You Have to Be Able to Accept a Loss: Like any investment, thereโs a chance youโll lose money when you swing trade. You canโt expect to make money on every trade and you have to be prepared to accept a loss if it happens.
Should You Become a Swing Trader?
- You Need Trading Experience: Swing trading is a good way to invest but you need to have a certain amount of trading experience under your belt before you do it. For example, you might try day trading first and then transition to swing trading after youโve gained some experience. - You Donโt Want to Be a Day Trader: If you want to become a swing trader but youโve tried day trading and found it too stressful, too time consuming, or too expensive, swing trading might be a good alternative. That doesnโt mean swing trading is without stress, time requirements, and costs. But it might be a better fit for you than day trading because it requires less attention and shorter-term focus.
Final Words
As you can see, swing trading is a type of investing that falls somewhere between day trading and buy-and-hold strategies. It doesnโt require as much time as day trading does but also doesnโt involve the long-term investment of buy-and-hold investing. If you want to learn more about swing trading, let us help you get started Join our Telegram channel.
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