Swing trading is a popular trading approach, and it is commonly recommended to newbies as a trading style. It offers various benefits, but, like any other type of transaction, it also has some drawbacks.
Swing trading is a strategy for benefitting from medium-term market swings rather than intraday price changes or long-term trends. Regardless of whether the trend is heading upwards, downwards, or sideways, pricing moves in waves, with up and downswings. Swing trading is a daily trading method that involves trading up and down price swings. Daily timeframe swings normally last a few days to a few weeks, but they can also last several weeks.
Swing Trading is described as profiting from single price swings rather than following a long-term trend with several impulse and pullback swings. In a range market, it is possible to trade both up and down price movements, but it is recommended to just buy into upswings because a stock’s price has limited downward potential but infinite upward potential.
What are the benefits and drawbacks of this trading strategy?
Swing trading offers a variety of benefits, including a minimal time commitment, capital management flexibility, and the ability to combine it with full-time employment. There are, however, disadvantages, such as overnight price gaps, missing out on exceptional equities, and market timing.
Swing traders make trading decisions solely based on Technical Analysis, with little or no input from fundamental analysis. They typically use chart analysis to predict when one swing will stop and the next will begin, so they try to enter at the start of a new swing and exit before the next one starts.
So it’s like day trading only? Not really!
Swing trading is more time consuming than Long Term Investing, but it is less time consuming than day trading. Unless a trading setup is developing and you want to go down to the 4-hourly timeframe to locate a better entry price, swing traders use the daily period for technical analysis.
So, unlike day trading, where you have all day to review data that is created every 15 minutes or 30 minutes, depending on your period, you just have a few minutes to perform your analysis at the end of the trading day.
Due to its nature and the fact that it requires minimal time, swing trading can be paired with a 9-5 job or any business that creates constant cash flow.
Swing trading, unlike long-term trading, does not need you to hold your money in a losing stock for an extended period of time. You take a small loss and move your money to a stock with a trade setup if a trade doesn’t work out.
Sounds tough? Not once do you start gaining some experience!
The good news is that your trading attitude will improve dramatically as a result of the increased cash flow. You may trade with confidence rather than in a haste to generate money if you know that your basic needs are satisfied and that you will be able to pay your bills.
With the appropriate methodology and risk management, swing trading can be extremely profitable and stress-free. Swing Trading can yield reasonable profits if you stick to your strategy on a regular basis. Swing trading can make you 10% to 50% per year on average, which is more than the broad market return. You must, however, have the mental capacity to remain constant.
Swing trading, to put it another way, helps you to be more flexible with your money management so that your money is always working for you.