Swing trading involves holding a position for a short period to take advantage of market fluctuations or “swings.” How does this trading strategy work? Read more to find out!
Swing trading is a well-known trading strategy that involves leveraging short to medium-term gains of a given asset. In general, trading tends to have its ups and downs. While a long-term financial outlook conditions us to look for incremental growth, it also makes us averse to short-term fluctuations.
However, there is a lot to be gained from brief bursts of activity. This is precisely where swing trading takes advantage. By reducing the trade window, it makes it accessible and manageable to make multiple opportunistic decisions. This results in moderate to decent gains.
What Is Swing Trading?
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The basic idea of swing trading involves holding a position for a short period to take advantage of market fluctuations or “swings.” Investing using this strategy helps formulate and execute a short-term strategy for profit.
Swing trading is usually done on the low time frame charts. The gains made from these may not be significant on their own, but multiple small gains from a few swings can help build a sizable return.
How Do You Make Money With It?
A short-term analysis is critical when it comes to swing trading. Instead of looking at primary trends over months and years, swing traders focus on shorter trends over weeks or days. Surface-level analysis helps you assess the position you need to hold. From there, it can be as simple as timing it right within a particular window.
As you would expect, this makes securities with a steady trend undesirable. Speculative or trending assets, on the other hand, align quite well with the moment-to-moment nature of swing trading. Candlestick charts, price history, and resistance levels are just some of the methods that can help generate a prediction for a trend's outcome. Once a desirable price movement is achieved, a swing trader may stop holding and sell off their position.
Day Trading vs Swing Trading — What's The Difference?
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On the surface, day trading and swing trading may sound quite similar. They are both trading strategies that profit off of market fluctuations in low time frames. However, contrary to the common belief, there can be significant differences between the two.
For one, day trading, as the name implies, is limited within a day. This means that trading trends will have to be restricted to just a few hours. The potential of price to move during this window means that risk potential is much higher.
To remain profitable, day traders rely on studying data very carefully to strategize their trades. A trader using this strategy will have to be more involved in the process of their analysis. They will need to monitor the performance of their asset by the hour to ensure they make the right moves. By the end of the day, gain or loss, the trader has to forfeit their position as part of their strategy.
On the other hand, swing trading takes a much more inert role in the life of a trader. Analysis for this tactic is much broader and tends to be a bit less technical. As a result, predicted price movements almost always take some time to mature. Day traders can use technical analysis, fundamental analysis, or a combination of both to make their predictions. This results in a simpler strategy that isn't fixed to specific time frames.
Of course, each strategy has its own associated risks. With swing trading, the potential for overnight market risk can be high, especially if speculation is the primary factor in driving price history. This leaves swing traders vulnerable to loss if they aren't able to monitor their position. Luckily, a strategy that emphasizes diversification can mitigate risks to some extent.
Swing Trading in Crypto
For assets like cryptocurrencies, the swing trading method can be the logical plan of action for trading. For one, crypto is highly susceptible to market speculation, allowing it to take big swings in price performance. Conventional analysis can often fall short when it comes to gauging the trends that a certain cryptocurrency will take. However, analyzing and forecasting short trends always seems to work better in the long run.
Conclusion
There is never a one-size-fits-all solution when it comes to trading strategies. Specific methods cater to individuals based on their preferences, holding periods, strengths, and more. However, if you are looking to get into trading quickly, something like swing trading can be worth keeping an eye on.
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