WHAT IS SWING TRADING?
Swing trading is the art and science of profiting from securities’ short-term price movements spanning a few days to a few weeks. This type of trading is most suitable when the market conditions are stable or the markets are trending. It does not matter if markets are going up or down, what matters is the trend. When the trend is established, short term trading with a time frame of about two weeks gives best results.
Swing Trading vs day trading
Unlike day traders, swing traders hold positions over several days and sometimes for a few weeks. But similar to day traders, swing traders rely heavily on signals from chart patterns and technical indicators to time their entries and exits from securities. The goal of swing trading is to profit from short but powerful moves of the stock market.
Swing Trading vs long-term investment
Swing trading also differs from the buy-and-hold approach to investing. Longterm investors may hold a security through periods of weakness that may last several weeks or months, hoping that the tide will eventually turn and their investment decision will be proven correct. Swing traders don’t care for such poor performance in the near term. If a security’s price is performing poorly, swing traders exit first and ask questions later.
How does Swing Trading work?
Strongly trending stocks often make a quick move after completing its correction which one can profit from. Hence, the basic strategy of Swing Trading is to jump into a strongly trending stock after its period of consolidation or correction is complete. You then sell the stock after 2 to 15 days for a 5%-20% move. This process can be repeated over and over again. You can also play the short side by shorting stocks that fall through support levels.
What are the advantages of Swing Trading?
- Swing trading combines the best of two worlds — the slower pace of investing and the increased potential gains of day trading.
- Swing Trading works well for part-time traders — especially those doing it while at work. While day traders typically have to stay glued to their computers for hours at a time, feverishly watching minute-to-minute changes in quotes, swing trading doesn't require that type of focus and dedication.
- While Day Traders gamble on stocks popping or falling by fractions of points, Swing Traders try to ride "swings" in the market. Swing Traders buy fewer stocks and aim for bigger gains, they pay lower brokerage and, theoretically, have a better chance of earning larger gains.
- To swing trade, you don't need sophisticated computer hook-ups or lightning quick execution services and you don't have to play extremely volatile stocks.
the Tradekarisma advantage
We have a proved system for this kind of trading and it works best on cash markets as it gives the opportunity to accumulate at the best possible price quickly. Normally this type of trade lasts from two days to two weeks and profit targets are between 5 to 20 percent. Swing traders earn profits based on a security’s price, and are not interested in how many frying-pans a company sells or the academic pedigree of its board of directors. So we base our 'suggests' mostly on Technical Analysis: about 75%. And the balance 25% is based on Fundamentals of the company. We are interested to know what line of business a company is in, whether that industry is on the rocks or gaining momentum. When a company reports its earnings, we compare them with market expectations. The swing trader using fundamental analysis isn’t interested in every detail of a company’s balance sheet. Instead, a high-level overview is enough. We have seen that you tend to get the best investment results when a security’s fundamentals line up perfectly with the technicals. Neither fundamental analysis nor technical analysis is perfect, and neither is superior to the other. Remember: Most swing traders are actually wrong the majority of the time, but still extremely successful. Why? Because the many losers are small, whereas the few winners are huge. Swing traders are rarely 100 percent invested in the market at any time. Rather, they wait for low-risk opportunities and attempt to take the lion’s share of a significant move up or down. When the overall market is riding high, they go long (or buy) more often than they go short. When the overall market is weak, they short more often than they buy. And if the market isn’t doing all that much, they sit patiently on the sidelines, and wait.