Complete Swing Trading Guide for Beginner Traders


Swing Trading is the most popular trading method used by professionals as well as beginner traders. Swing trading can last for a couple of days or weeks, even months. Traders ride when there is a strong trend to gain a good amount of profit until the market strongly reverses. Below we provided the basics of Swing Trading and how you can trade with the market’s reversal points.  

16 June 2020 | AtoZ Markets – Swing Trading is a trading method that focuses on profiting off switching directions in the price context on comparatively short time-frames. Swing traders are always willing to catch upswing and downswing in the asset price. Most traders hold the position for one to five trading days, although some traders hold for a few weeks if the trade is in profit.

What Is Swing Trading?

Elementary trading that holds positions for longer than a single day is described as Swing trading. In most cases, swing traders are ultraconservative. Because alteration of corporate principles usually demands a few days or a week for adequate price movement to execute an expedient profit. It is a simple portrayal of swing trading. Swing trading is in the center of the continuum amidst in trend trading and day trading. Trend traders experiment long-term basic trends of an index or stock. They may retain the stocks for weeks or months. And a day trader retains the stock or assets from a few seconds to a few hours but that is not more than a day. And swing traders retain a certain stock for some period which can be usually a few days to two-three weeks.

 Swing Trading

How Does Swing Trading Works?

Swing trading entangle retaining either a long position or short position for more than one trading period. Typically, not more than a few weeks or a couple of months, this is a general time frame. Some traders still may envisage them swing trades even after retaining a position exceeding a couple of months. Though, it is a sparse outcome fetched through hugely volatile situations swing trades can also befall by a trading period. Swing trading aims to nab a portion of an effective price move. Some traders may prefer more gradual stocks, wherein some traders hunt for volatile stocks with lots of movement. Swing trading is the recognition process of the probable movement of an asset’s price while ongoing a position. If that move actualizes then a portion of the profit can be captured.
Furthermore, swing trading is a popular active trading method. In which, traders use multifarious sorts of technical analysis to attain short-term opportunities. Traders should have profound knowledge of technical analysis both basic and advanced techniques if they are eager for swing trading. Most of the swing traders evaluate trades on a risk/reward basis. By doing technical analysis swing traders determine where they will place entry and where they will put a stop loss and where they will put Take profit. Besides, if they’re willing to take risk of 1 per cent of their trading account, they try to earn a profit of nearly 3 per cent. In addition, a swing trader rarely looks for trade on the daily chart, they may watch one hour or fifteen-minute charts to find the appropriate entry, stop out point and take profit levels.
ProsCons
  • Requires less time rather than day trading
  • Risky to hold whole night and in the weekend
  • Provides maximum profit in a short-term period market swings
  • Sudden reversal can damage trading account
  • Technical analysis can simplify the trading process
  • By trading short-term, a trader may lose long-term trend

Swing Trading vs Day Trading

The main difference between day trading and swing trading is the holding period of the trade. A swing trading can last for overnight. On the other hand, day trading lasts for a few hours or may end before the market closes. In a normal way, day trading trades are traded for that particular day, while swing trading trades can be held for several days to weeks.
Furthermore, when swing traders hold the position overnight there is an uncertain risk at the position such as gaps ups and down. Therefore, as swing traders they have to maintain the position overnight and they use small lot sizes to prevent uncertainty in the market. In contrast, day traders usually take a bigger risk compared to swing traders and may use 25 per cent of trading margin. Swing traders also have the opportunity to access high leverage of 50 per cent.

Methods of Swing Trading

There are many swing trading methods out in the market, but these are the best and most common trading methods that traders use:
  1. Fibonacci Retracement

  2. Support and Resistance Triggers

  3. Channel Trading 

  4. 10- and 20-days SMA

 

1. Fibonacci Retracement 

Traders used Fibonacci retracement to identify the support and resistance levels, where the market can possibly reverse back. An asset often took retracement on a certain percentage in the trend before continuing again. Moreover, the classic Fibonacci horizontal lines ratios of 23.6%, 38.2%, 50% and 61.8% on an asset chart can be potential reversal levels. However, most powerful Fibonacci levels are 50% and 61.8%, where the most reversals happen.

A trader can enter a short-term trade when the market is reversing and hold it until the price bounces or rejects 50% or 61.8% Fibonacci levels.

Swing Trading - AtoZ Markets

2. Support and Resistance Trigger 

Support and resistance lines are the foundation of the technical analysis and you can build a swing trading strategy near them. A support level represents the market’s potential bounce area or where the buying pressure may occur. In contrast, a resistance level represents the market’s potential rejection area or where the selling pressure may occur. A trader would look for a sell entry on the resistance area and a buy entry on the support area. Besides, traders put their stop loss above or below the resistance or support level and tasks profit when markets hit the opposite level.

Swing Trading - AtoZ Markets

3. Channel Trading

Indication of a potential trend and trading in a channel is the main requirement of this swing trading strategy that you need to recognize in a stock. When the price goes down off the top line of the channel, you would consider opening a sell position. And that is only if, on a stock chart, you capture a channel near a bearish trend. To trade with the trend is vital while using channels for swing trade stocks. Unless price breaks out of the channel, moving higher and signifying a change and the beginning of an uptrend, you would only search for buy positions when the price is in a bullish trend.

Swing Trading - AtoZ Markets

4. 10 – and 20 days SMA 

Using the ten-days and twenty-days simple moving averages (SMA) is the most popular swing trading technique. Trades used these two SMA’s to identify the crossover or to confirm the swing points. When ten-days moving average crosses twenty-days moving average upside, it means to market in an uptrend. On the other hand, when the ten days SMA crosses twenty days SMA downward, it means to market in a downtrend.

Swing Trading - AtoZ Markets

 

Summary

Swing trading, in reality, one of the best trading styles for beginner traders, who can start their journey with. It can be very beneficial for intermediate and advanced traders. There are lots of trading methods that you can choose depending on your psychology and mindset. Before switching to the real account you should practice swing trading on the demo account to improve your trading for consistent outcomes.

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