what is swing trading 
swing trading is a style of trading that attempts to capture short to medium term gains in a stock or any financial instrument over a period of a few days to several weeks swing traders primarily use technical analysis to look for trading opportunities swing traders may utilize fundamental analysis in addition to analyzing price trends and patterns understanding swing tradingtypically swing trading involves holding a position either long or short for more than one trading session but usually not longer than several weeks or a couple of months this is a general time frame as some trades may last longer than a couple of months yet the trader may still consider them swing trades swing trades can also occur during a trading session though this is a rare outcome that is brought about by extremely volatile conditions the goal of swing trading is to capture a chunk of a potential price move while some traders seek out volatile stocks with lots of movement others may prefer more sedate stocks in either case swing trading is the process of identifying where an asset s price is likely to move next entering a position and then capturing a chunk of the profit if that move materializes successful swing traders are only looking to capture a chunk of the expected price move and then move on to the next opportunity madelyn goodnight investopediaswing trading is one of the most popular forms of active trading where traders look for intermediate term opportunities using various forms of technical analysis swing trading and technical analysisidentifying swing trading opportunities relies heavily on technical analysis techniques one of the fundamental tools in a swing trader s arsenal is chart analysis where patterns and trends are studied to anticipate future price movements chart patterns such as head and shoulders double tops and bottoms triangles and flags can signal potential swing trading opportunities we ll talk more about these later another aspect of technical analysis for swing trading is the use of indicators these mathematical calculations applied to price and volume data help traders gauge the strength and direction of a trend popular indicators among swing traders include moving averages relative strength index rsi stochastic oscillator and moving average convergence divergence macd for example a swing trader may enter into a position when a stock s macd hits a certain target then the trader will sell that position if the macd hits a different target finally support and resistance levels play a role in identifying swing trading opportunities support represents a price level where buying interest is strong enough to prevent the price from declining further while resistance is a level where selling interest is strong enough to prevent the price from rising further swing traders often look for price to bounce off support or break through resistance as confirmation of a potential trade setup advantages and disadvantages of swing tradingmany swing traders assess trades on a risk reward basis by analyzing the chart of an asset they determine where they will enter where they will place a stop loss order and then anticipate where they can get out with a profit if they are risking 1 per share on a setup that could reasonably produce a 3 gain that is a favorable risk reward ratio on the other hand risking 1 only to make 0 75 isn t quite as favorable swing traders primarily use technical analysis due to the short term nature of the trades that said fundamental analysis can be used to enhance the analysis for example if a swing trader sees a bullish setup in a stock they may want to verify that the fundamentals of the asset look favorable or are improving swing traders will often look for opportunities on the daily charts and may watch one hour or 15 minute charts to find precise entry stop loss and take profit levels swing trading requires less time to trade than day trading it maximizes short term profit potential by capturing the bulk of market swings swing traders can rely exclusively on technical analysis simplifying the trading process swing trade positions are subject to overnight and weekend market risk abrupt market reversals can result in substantial losses swing traders often miss longer term trends in favor of short term market moves day trading vs swing tradingthe distinction between swing trading and day trading is usually the holding time for positions swing trading often involves at least an overnight hold whereas day traders close out positions before the market closes to generalize day trading positions are limited to a single day while swing trading involves holding for several days to weeks by holding overnight the swing trader incurs the unpredictability of overnight risk such as gaps up or down against the position by taking on the overnight risk swing trades are usually done with a smaller position size compared to day trading assuming the two traders have similarly sized accounts day traders typically utilize larger position sizes and may use a day trading margin of 25 12swing traders also have access to a margin or leverage of 50 this means that if the trader is approved for margin trading they only need to put up 25 000 in capital for a trade with a current value of 50 000 for example 3swing trading tacticsa swing trader tends to look for multiday chart patterns some of the more common patterns involve moving average crossovers cup and handle patterns head and shoulders patterns flags and triangles key reversal candlesticks may be used in addition to other indicators to devise a solid trading plan ultimately each swing trader devises a plan and strategy that gives them an edge over many trades this involves looking for trade setups that tend to lead to predictable movements in the asset s price this isn t easy and no strategy or setup works every time with a favorable risk reward winning every time isn t required the more favorable the risk reward of a trading strategy the fewer times it needs to win to produce an overall profit over many trades 4real world example of swing tradingimage by sabrina jiang investopedia 2020using a historical example the chart above shows a period where apple aapl had a strong price move higher this was followed by a small cup and handle pattern which often signals a continuation of the price rise if the stock moves above the high of the handle in this case aside from risk reward the trader could also utilize other exit methods such as waiting for the price to make a new low with this method an exit signal wasn t given until 216 46 when the price dropped below the prior pullback low this method would have resulted in a profit of 23 76 per share or thought of another way a 12 profit in exchange for less than 3 risk this swing trade took approximately two months other exit methods could be when the price crosses below a moving average not shown or when an indicator such as the stochastic oscillator crosses its signal line 