A swing trader looks out for swings or market changes that last several days, weeks, or months. Therefore, as a swing trader, you would trade using the daily, 2-day, weekly, or monthly timeframes, unlike the day trader, which uses shorter time frames ranging from 5 minutes to 24hours.
If you’re a beginner trader, you might want to adopt the swing trading strategies because it involves opening trades trading positions that last from 24 hours to several weeks, less monitoring, and lesser risks. This makes swing trading a better alternative if you hold a 9-5 job or require more time for market analysis.
Swing trading relies heavily on volatility in prices of stocks, fiat currencies, commodities, and cryptocurrencies. To profit from swing trading, you will be relying heavily on technical analysis to take a buy or sell position. However, fundamental analysis can influence swing trading outcomes too.
Swing trading sure does hold enough opportunities for you to profit massively from; at the same time, your losses can be pretty heavy, especially if you’ve not placed buy or sell stops for opened positions. Check out here if you want to learn more about swing trading.
Pros of swing trading
It is profitable
Swing trading is more profitable than day trading since you can take advantage of bigger lot sizes and also spend more time on technical analysis. According to Cory Mitchell of Investopedia, Swing traders profit by using a take-profit/stop-loss system to profit from Forex trading and also minimize their risk. Profits made from swing trading can vary; however, you should be making 10% minimum trading profit and more if you’re able to capture more significant portions of market trends. You can make a bigger profit from swing trading overnight from sudden spikes or deeps that may be in your favor, depending on your trading stance.
It takes advantage of market trends
A swing trader takes advantage of the market trend to make a profit. There are two types of trends in the market; the uptrend and the downtrend. The uptrend presents an immense buying opportunity; hence you can profit from the market’s rising prices. On the other hand, prices don’t keep going up forever; at some point, there is a trend reversal as prices start dropping. This also presents an opportunity to make a profit by going short. Although the market experiences pullbacks while in an up or downtrend, as a good trader, you will be quick to identify and flow with the current market trends.
It requires lesser time and control
Due to the longer timeframes involved in swing trading, you do not need to sit at the screen monitoring multiple trades for longer hours. This saves you more time; hence it is an ideal trading style suitable for beginners and busy persons.
It relies heavily on technical analysis
In the words of Rebecca Baldridge of Insider, Swing trading relies heavily on technical analysis to determine entry(buy) and exit (sell) points. Therefore, it requires simple indicators such as the Fibonacci tool, lines, moving averages, etc., to identify and possibly predict changes in market trends. Thus, in the long run, a swing trader is sure of making profits based on accurate market analysis.
Cons of swing trading
Higher trading commissions
Based on Justin Keupper’s article: ‘The Daily Routine of a Swing Trader,’ one of the major drawbacks of swing trading is a higher commission charged for overnight trading. However, the commission charged may be negligible compared to the profit you stand to make in the long run.
Swing trading exposes you to greater risks
Irrespective of market trends, the market remains unpredictable, and your market analysis is at best a prediction since nothing is certain in the financial market. You’re more exposed to market risks and uncertainties such as overnight or weekend market gaps due to the longer trading position you’re holding. In the words of Christina Majaski, Swing traders can experience substantial losses because they hold their trading positions longer than day traders.
You may not get the timing right
Getting the timing right to enter a trade can be difficult and time-consuming due to the longer duration of price movements; thus, you might be taking a long position when the market is about experiencing a trend reversal. This can lead to capital loss, especially when your position is against the market gap. You can also be exposed to gap risks when prices of stocks and commodities change after market closure.
Wrapping up
Swing trading can be much more profitable than day trading, but overall, both trading styles follow similar trading patterns revolving around market volatility and other trading indices.Market volatility plays a crucial role in swing trading; making the most of market volatility requires that you combine both technical and fundamental analysis to develop a profitable trading strategy.
However, the two most crucial strategies you might consider adopting as a swing trader are trend trading and breakout trading. Overall, you stand to benefit more as a swing trader based on the pros of swing trading stated above.
Story by Miriam Jensen
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