Swing, swing, swing from the tangles of my heart – You know that song, don’t you? It might as well be the theme song of swing traders (NOT swingers) and swing trading.
This trading strategy is probably among the most popular strategies out there. Professionals use it, and beginners choose it among the first trading strategies they learn.
But what’s so special about it? How does it differ from, say, day trading? What are the best swing trading strategies out there?
Read on and learn more about it.
What is Swing Trading?
Many traders consider swing trading as a technical analysis-dependent strategy. But there are also many others who define it as somewhat a fundamental analysis-type of trading.
So, what is it, really?
The safe zone is probably in the middle of the two approaches.
Technical analysis helps traders spot trading opportunities looking at the daily charts. Meanwhile, fundamental analysis helps with analyzing price trends and near-term outlook.
This strategy involves holding a long or short position for more than one trading sessions. Usually, the swing trader holds the position from a few days to several weeks.
The idea is that the trader must capture a chunk of the potential price move. Basically, you determine which direction the price is likely to move. You enter a trade, and you try to capture most of the movements.
Sounds easy, right? But there are considerations.
One of the most important considerations is the type of asset you’re trading.
Assets that are relatively more sedated than others aren’t a favorite among active traders. Meanwhile, volatile assets swing between highs and lows. Swing traders love these assets.
For stocks, that means large-cap stocks, which you can find in major exchanges. There are also lots of currencies in the forex market that you can trade.
Swing trading works well in different market conditions, although you must be savvy enough to determine what kind of market you are experiencing.
In extreme bull or bear markets, even the most active assets might not show the same highs or lows. During an extreme bull or bear market, prices generally go for a single direction only.
Importance of EMAs
Exponential moving averages (EMAs) are a variation of simple moving averages that give more weight to the more recent data. And these are the best friends of a swing trader.
These averages, when you plot them on the charts, offer a visual of support and resistance levels.
With regards to the type of market, they also tell you if the market is bullish or bearish. Crossover patterns offer price points, which you can use to enter or exit the trade.
Bullish crossover patterns happen when the asset price crosses above the nine-, 13-, or 50-day EMAs. This crossover suggests a reversal to an uptrend is in the horizon.
Meanwhile, bearish crossover patterns happen when the price crosses below the nine-, 13-, and 50-day EMAs. This crossover suggests a reversal to downtrend is possible.
Swing Trading vs. Day Trading
This trading strategy is a lot like day trading, in which a trader also tries to capture the movement of the asset’s price.
However, day trades aren’t at all like swing trades. These are two different trading styles that might fit traders differently.
The capital requirement changes depending on the type of market you are trading. A day trader who trades in the futures market will have a different capital requirement from a swing trader trading in the stock market.
For instance, in the US, day trading stocks will cost you at least $25,000. Meanwhile, there is no legal minimum limit for a swing trader of stocks. However, that swing trader might want to set aside at least $10,000 in their account if they actually want to see profits.
Day trading and swing trade are both active trading. However, they require different trading time.
Day trading usually takes up much more active time. A day trader trades around two hours per day, not including the prepping time and trading review.
On the other hand, swing trades consumes much less time. You usually just need around 45 minutes per day to find new trades and update orders right off the charts.
And because swing traders hold positions for several days or weeks, they sometimes only have to look at them once or twice a week.
Day trading happens when the market is open, and they are most effective only during certain times of the day. Traders then look at second-to-second movements from which they can make profits.
Traders who want to make a quick buck through compounding returns use day trading. However, it’s not really that easy.
You have to make twice as much as you lose on losses while also winning 50% of your trades. Trying to do this may also lead to faster losses than faster gains.
Meanwhile, swing trades are slower to accumulate gains and losses. But you still have the chance to make swing trades that make for huge gains.
Time, Practice, and Skills
Both these trading styles require a good deal of time, practice, and skills to profit consistently. As with all styles, success in these strategies comes from consistent, proper, and disciplined execution.
Your personality also adds to the combination. Day traders are usually stress-resistant individuals who can stay focused through extended periods of time.
Meanwhile, swing trading happens at a much slower pace. You can still experience high stress, but not as much. Still, it also requires a ton of discipline and patience.
Swing Trading Strategies for Beginners
And swing trading isn’t only one formula. You need to learn the variants of the strategy, so here again, you need a lot of time and patience before you can swing successful trades.
This part of the article deals with some of the best, most popular swing trade strategies for beginners.
The trendline strategy is practically the most popular swing strategy for traders. Buying at the bottom and selling at the top requires knowledge of trendlines, after all.
Just draw trendlines and wait for the price to reach them. When the price touches the trendline, search for bullish or bearish reversal candlesticks. Buy or sell accordingly.
Simple, but powerful.
Floor Trader Strategy
Another simple but powerful trading strategy – the floor trader strategy. And we don’t mean the floor of your house.
In this strategy, you simply wait for the nine-day EMA and 18-day EMA to cross. Then, wait for the price to break away post-cross. Search for a retract, or when the price comes back to touch either of the two EMAs.
Once you see a bullish or bearish reversal candlestick, buy or sell accordingly.
You can use this strategy when you see prices sticking within a trading range or channel, between solid support and resistance.
First, you identify the market range/channel. Then, you wait for the price to break below support or above resistance.
If the price does break support, wait for a strong price rejection (or a close above support or below resistance). If you see such a strong rejection, go long on the next candle.
Riding the Wave
As we have said, there are different strategies to use in different market types. A variant of the swing trading strategy can also work in trending markets.
When trading a trending market, for instance, an uptrend, you want to see a deeper pullback. That’s because you’ll have a bigger space for the upside when you buy.
You want to see the pullback to occur at least towards the 50-day EMA or deeper.
So, first, you want a trend that goes along with the 50-day EMA. If the market approaches that level, wait for a bullish price rejection.
And when the rejection happens, go long on the next candle.
As the name suggests, this strategy requires you to go against the wave instead of riding it. So, you fight the market’s momentum.
First, you need to identify a strong move into a resistance line that takes out the previous high. Again, wait for a strong price rejection while the candle forms a strong bearish close.
Go short on the next candle, and take profits at the next swing low.
Of course, you need to have a powerful enough platform to perform the above strategies. Different brokers offer different platforms and tools, and this broker review might have what you are looking for.
For beginner traders, swing trading is among the best trading strategies to learn. Of course, it’s not perfect. It also doesn’t promise a guaranteed profit at every turn.
Still, this strategy is popular for good reasons. It offers a lot of ways to learn the technical and fundamental aspects of trading. At the same time, traders can use it in different market conditions.