What is Swing Trading: A Complete Guide for Investors

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what is swing trading

Everyone wants to build their different sources of income by not actively taking part in it and this is where passive income comes into the picture. Investing your money in the stock market is one of the common types of passive income through which we can maximise your wealth. Investing can be very easy if done with proper strategies and actions. In this part, we will cover one such strategy called swing trading.

Swing Trading Meaning

So, when a trader holds the position for a minimum of 1 day and as long as a week then it refers to the practice of swing trading. Swing traders use technical analysis to enter into positions and make returns out of them.

(Technical Analysis is a process of using patterns to identify the trends and make predictions)

The meaning of swing trading is to make profits from the movement in the price of the stock. Simply said it is the process in which traders identify where an asset's price is likely to move next, enter the position and book profits from that particular movement.

How is it different from Trend Trading and Day Trading

In Trend Trading, traders hold the position for a longer period due to the low volume of transactions but profits can be higher per position.

In Day Trading, traders hold the position for a day or even less than that and the profit here is the lowest.

But in the case of Swing trading, traders are not holding the position for a long period nor for a short period, and the amount of profit is between the amount of profit earned during day trading and trend trading.

Types of Swing Trading

  1. Counter trend swing trading - When a trader attempts to earn profits by trading against the current, broader trend then it is a counter-trend.
  2. Trend following swing trade - It is a trading style where traders sell when trends go down and buy when it goes up.

Difference between Swing Trading and Day Trading

  1. In swing trading, traders hold the position for a day or a week. Whereas in the case of day trading it is not possible to hold the position for more than a day.
  2. Swing trading is not much leveraged compared to day trading.
  3. In case of swing trading, the number of transactions is less as compared to day trading because swing traders pick one stock through the process while day traders pick several stocks in a single day.
  4. Time requirement in the case of swing trading is not more if compared to day trading. And this is why swing traders are known as part-time traders while day traders are known as full-time traders.
  5. Swing trading has required a high margin. Whereas day trading does not require a high margin.
Basis of differenceSwing TradingDay Trading
Holding time

Minimum - 1 day

 Maximum - Few weeks 

Not more than a day or it can be less than that
LeverageLess leveraged compared to day trading Highly leveraged 
Number of transactionsFewerHigher
Time requirementLess (known as part-time trading)More (known as full-time trading)
MarginHigh requirement of marginLow requirement of margin

How does Swing trading work?

Swing trade consists of combining the skill of analysing the footprint and reading the price chart. Swing trading is classified into three parts which are as follows:

  1. Choose your stock The first part will always be choosing or picking up the stocks through which you can expect a good return. As a swing trader, you must do a technical analysis so that it can be easy to find a fundamentally strong stock.
  2. Analysis of chartAfter selecting the fundamentally strong stock you can move forward to the analysing of the chart of your selected stock. Analyse various indicators like Moving average convergence divergence (MACD), Relative strength index (RSI), Trend lines and volume etc. and also read daily articles and news about selected companies.
  3. SetupThe last part will be set up in which the target price will be set above the entry price and place your stop-loss order below the entry price. And in this way, you can make a return from swings in the market.

Swing trading strategies 

If you want to make returns on your invested amount you need to apply some strategies as a swing trader. Following are the swing trading strategies in India :

  1. T-line trading - T-line can be used by traders to make a decision based on the charts available. When any security closes below this line then it is an indication that the price will continue to fall. Whereas if it closes above the line then the indication is that the price will continue to rise.
  2. Japanese candlestick - It is common among all the traders in a market. Since it is easier to interpret and can be understood, most traders prefer it

Advantages of Swing Trading in India

As you know swing traders are concerned with reading charts and analysing the patterns which automatically creates opportunities for them to earn good returns by following the trends and patterns.

  1. Working hours flexibility- As a swing trader, you get the benefit of flexibility you don't have  to trade for long hours you can easily make a profit while doing it on a part-time basis
  2. High Margin - Swing trading will help you earn a high margin within a week. As the transaction is fewer the rate of profit per transaction is also high here. 
  3. Low risk - Swing traders are concerned about technical analysis and as the included indicators are safe and used by the majority of swing traders, one can easily rely on them and consider swing trading less risky.

Swing trading can give flexibility with good leverage and return to the trader. However, it is important to understand the risk involved in swing trading. Analyze before putting your money into any stocks or a company so that you can reduce the risk of loss.

  • What do you mean by 'Swings' in swing trading?

  • What is better swing trading or day trading?

  • How to get success as a swing trader?

  • Is swing trading risky?