What is Swing Trading? Tips & Tricks for Beginners

January 6, 2023

What Is Swing Trading? In this post, we give an overview of what it is, how investors can use it, and the pros & cons of the practice!

What Is Swing Trading?

It can often be confusing for a person unfamiliar with the ways of the stock market -- there are entire dictionaries of terms and words that don't mean the same things they do in English.

It seems for a person to graduate from a basic player trying his or her luck on the market to a full-blown trader and investment conqueror, one needs to be in the know of the different terminologies thrown around on the trading floor.

One such term that's frequently tossed here and there is swing trading. Though not something too difficult for the novice to comprehend, engaging in swing trading is a practice no novice should participate in.

It requires a certain degree of skill, experience, and dedication to pull off many of the swing trading tactics done by the sophisticates who do it.

For you to get a better grasp of this concept, we've compiled all the need-to-knows about swing trading, how it's done right, and simplified it for you below. Definitely, a must-read before you swing trade yourself.

I've been trading and investing in the markets now for over 11 years, and have quite a bit to share with you on the subject!

By the end of this post, you'll learn:

  • The Definition of Swing Trading
  • How It's Different From Day Trading
  • Examples of Swing Trading And How to Implement Them Yourself
  • Advantages and Disadvantages
  • And More...

What IS Swing Trading? (Definition Time!)

In simple terms, swing trading is a term used for those who hold a position, either long or short, for more than a trading session.

These positions though rarely ever go beyond a couple of weeks to a few months. That being said, some traders have held positions for extended periods of time but still go on to consider them swing trades.

Confusing? Well, think of swing trading as nothing more than a general term for the act of traders looking to profit from price changes in stocks and other securities.

Swing traders anticipate for a price to change, either increase or decrease and proceed to take a position where they can benefit from the change. Afterward, they would then move on to the next opportunity. The main asset for the trader here is an analytical and the ability to make highly likely predictions on the future of a certain stock.

It is quicker than day trading but also riskier if not done with impeccable timing. A trader must be on top of the news constantly and be ready for all outcomes. It would also help if the trader had insider Intel or a mind for tactical analytics which provides for a lot of dedicated guesses. 

You could also get a better grasp of the swing trading tactics if you are aware of what short selling and long selling is.

Long and short selling, along with some other tactics, are specific ways swing trading is carried out.

Related: Short vs Long Stocks, Overview & Examples

At any rate, though, swing trading can lead to either higher or lower than usual returns on investment -- thus is only engage by seasoned investors with an excess of capital.

How Does it Differ from Day Trading?

The main difference between the two is essentially the time in which they hold their positions.

Day trading, as the name implies, usually entails the trader closing his or her position before the market closes. This means the trader is less exposed to unexpected changes in price than holding a position overnight or longer is prone towards. Unfortunately, it also means that the safety is bought for by lower returns.

Swing trading, on the other hand, seeks to hold a position overnight or longer for the desire to profit off of a dramatic price change. This allows for a higher return potential which other forms of investment simply cannot match. This also means that the trader is exposed to the overnight and/or weekend risks -- a host of price-influencing things that can happen overnight or through the weekends while the market is closed -- which can make or break the trader's position.

There are more things to learn about Day trading, but for now, those are the main differences it has with swing trading.

For More Information on the differences between Day Trading & Swing Trading, see our post: Swing Trading VS Day Trading

Example of Swing Trading and Its Tactics

Traders who engage in swing trading often utilize multi-day charts to get a hold on market. These charts can often reveal patterns that hint towards a likely outcome in the market's future. Using these methods, a trader can formulate a strategy that would give him or her the potential to profit from the change.

Common patterns seen on these charts can include but are not limited to:

  • average crossovers
  • head and shoulders patterns
  • cup-and-handle patterns
  • flags
  • triangles
  • candlesticks
  • reversal candlesticks

Each of the patterns can lead to different things in terms of price changes. They are not often accurate in the future price they hint towards but, if a trader works out a proper strategy for all the trades, they need not be accurate all the time. They only need to be right enough for profits to be gained overall.

Imagine that there is a company that, in the charts at least, has been showing a strong price increase for a while now. You see that the charts, when all compared, show a cup-and-handle pattern (see image below) -- usually an indicator of continued price increases

cup-and-handle pattern

Using this indicator, you proceed to purchase stocks from that company and wait for the prices to reach unprecedented heights, You would then develop an exit point that allows you to achieve a certain profit limit without risking your luck any further.

Though sounds simple, consider how difficult it is for surfers to actually find and ride a large wave.

Find a stock that is about to get an upwards swing based on trends and likelihoods is an especially risky move to make if you're not careful.

This is why investors never put all their eggs in one basket but, instead, spread them out onto different stocks with different likelihoods -- allowing them to hedge each other.

Make sure to provide yourself with the greatest possible chance to break even or make a profit and never put all your expectations on a single stock.

Advantages and Risks of Swing Trading

Here are some of the advantages and disadvantages of swing trading for you to better weigh whether or not it's worth engaging:

  • It takes up less time than other investments. Swing trading can take place in as little as 2 days to a few months. It rarely ever goes beyond more than a few months at a time but, despite that, it paves the way for higher rates of returns than traditional forms of investment. This earn-big-quick appeal has made it a favorite among more adventurous traders in the market.
  • Higher rates of profit. As stated, it's not only fast but highly profitable. The market is volatile by its very nature. This means the prices of its stocks change constantly. Some investors have managed to turn this into an advantage and profit from the difference in price from one day to the next. More so than the safe, predictable returns of long-term investments, swing trading is an adrenaline-causing activity that many experienced traders find addicting.
  • It's much simpler. It is understood that all the charts and statistics involved in this form of investment make it no math-haters friends. That being said, once you have a grasp on the tactical analytics involved in swing trading, you'll actually find that it makes it easier to predict the market to some extent. It provides autonomy and freedom to seasoned investors who wish to manage their own finances and bet on their own intelligence as opposed to the predictions of someone else.
  • You are exposed to more risks. Right when you think you know the market, something happens while it's closed that upends all your plans. These are known as overnight and weekend risks. Anything can happen in between trading sessions that a trader has no control over. Rather than cutting your losses or walking away while you're on top at the end of each day in the market, swing trading means you are willing to hold your position and take the risk of seeing what will happen tomorrow.
  • You miss out on longer trends. Sometimes, there are market trends that pay off more in the long run rather than short, fast-paced trading. Swing trading means you are sacrificing a potential for stable income for short-term gains -- even if the gains are much larger if you take your time. Investors though mixed and match their investments with long-term commitments and short terms earning positions and allow them to hedge each other to eliminate loss potential.
  • Higher Potential for Loss. To balance out the advantage of possibly earning higher, you can also incur large losses in swing trading due to abrupt market changes. The stock market isn't the most dependable entity in the world and swing trading leaves you more susceptible to its many whims than most other forms of investment.
Bottom Line

Swing trading can get you more in the short term but can cost you big time if you're not careful.

The key is to swing trade when you are ready and little by little. Learn what each chart pattern means, how to recognize short-term trends, and make correct judgment calls on the market's stock prices before actually engaging in swing trading. Doing so will save you a world of hurt and earn you a world of profits!

About the author 

Jenna Lofton, an expert in stock trading, investing, and financial planning, combines over a decade of experience with rigorous academic training. Holding dual MBAs in Finance and Business Administration from the University of Maryland, Jenna's expertise is grounded in a deep understanding of the financial markets. Her career, which started on Wall Street, has evolved into empowering others through her insights and analyses in the dynamic world of finance.

Based in New York City, Jenna's approach is informed by her hands-on experience as a former financial advisor and her keen observation of market trends. She is known for translating complex financial concepts into actionable strategies, making her a valuable resource for both seasoned investors and newcomers to the stock market. Her commitment to financial literacy and her ability to demystify investment principles have made her a respected and authoritative voice in the investment community.

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