What is Swing Trading: A Complete Guide for Investors
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
- Counter trend swing trading - When a trader attempts to earn profits by trading against the current, broader trend then it is a counter-trend.
- 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
- 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.
- Swing trading is not much leveraged compared to day trading.
- 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.
- 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.
- Swing trading has required a high margin. Whereas day trading does not require a high margin.
|Basis of difference||Swing Trading||Day Trading|
Minimum - 1 day
Maximum - Few weeks
|Not more than a day or it can be less than that|
|Leverage||Less leveraged compared to day trading||Highly leveraged|
|Number of transactions||Fewer||Higher|
|Time requirement||Less (known as part-time trading)||More (known as full-time trading)|
|Margin||High requirement of margin||Low 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:
- 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.
- Analysis of chart - After 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.
- Setup - The 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 :
- 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.
- 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.
- 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
- 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.
- 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?
It refers to volatility in the stocks or movement in the price of stocks
What is better swing trading or day trading?
It depends on investor to investor if you're someone who want a quick return then go for day trading and if you want a high return then go for swing trading.
How to get success as a swing trader?
You just need to know about the technical and fundamental analysis if you want to be a successful swing trader.
Is swing trading risky?
It is risky but compromises less risk if compared to other forms of short-term trading.