What is Swing Trading?

Swing trading’s popularity has steadily increased. It makes sense. People are consistently looking for viable ways to make extra income in their spare time. Swing trading presents an avenue and an opportunity to do just that.

While day trading continues to get more attention, swing trading offers a few perks that day trading can’t offer. Namely, it provides a bit more time and flexibility than the high-stress, full-time demands of successful day trading.

However, like any trading style, swing trading requires a bit of research and learning to get started. So, what is swing trading, exactly? How does it differ from the other trading styles? What are some of the best strategies?

Let’s dive in.

Swing Trading: Defined

According to Investopedia, 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.”

In other words, unlike day trading, which occurs over one trading day, swing trading capitalizes on trades over a few days, up to a few weeks. This is different than position trading as well, which requires holding positions for months or even years.

The Advantages to Swing Trading

There are many benefits to this trading style. For one, because swing traders trade so frequently, they have plenty of opportunities to trade and make money. Because these trades aren’t as long-term as position trading, the duration risk per each trade is substantially lower.

Additionally, swing traders hold their positions longer than day traders. This allows them to wait until the market swings to buy or sell. This makes the profit earning potential per trade much higher for swing traders than for day traders.

In a lot of ways, swing trading is a middle ground between day and position trading. Swing traders enjoy the instant gratification that day traders enjoy, with higher profit potential per trade, like position traders.

Another substantial benefit to this trading style is that it doesn’t require a full-time commitment. If you’re looking to make some side income, it’s much more feasible to do swing trading part-time than it is to do day trading part-time.

Any skilled day trader will tell you that to make significant money day trading, you have to work it full time, and that’s just not a viable option for most people – especially when they’re just starting with trading.

While all these benefits are incredible – it’s imperative to mention the potential pitfalls of this trading style.

The Downsides to Swing Trading

While swing traders don’t have to work full-time, they can lose out to aggressive day traders who never stop watching. And, while swing traders aren’t trading as frequently as day traders, they still pay those high commission fees for frequent trading.

Also, because swing traders don’t end their trades at the end of each day, they’re open to overnight and weekend fluctuations that can dramatically shift the market. You could end the session one day and be in a completely different situation when you wake up. It’s part of the risk of holding onto positions for longer than a day.

Another disadvantage to being in the middle of strategies is that swing traders can also miss out on huge profit potential by not staying in longer like the position traders.

Ultimately, the risk and reward vary greatly with your strategy and the current state of the market.

Starting Strategies

Unlike other trade styles, swing traders can rely entirely on technical analysis to inform their trades. Like different trade types, picking the right stocks is crucial.

In general, you want to go for large-cap stocks, which are companies with values higher than $10 billion (Think Microsoft, Amazon, Apple, etc.) These stocks tend to have healthy fluctuations without tons of intraday volatility.

However, like everything trading-related, rules aren’t hard and fast. Many traders develop their own unique strategies that are completely opposite of standard advice.

If you’re considering jumping into swing trading, just remember to learn as much as you can before you put real money on the line. Also, never risk more than 10% of your account on one trade. Investing more than 10% in a single stock can make the risk too great, while using much less makes the potential reward too small.

If you’re cautious and calculating, swing trading could be a terrific avenue to make some substantial side income. Who knows? In some time, you might be able to swap out your full-time job for a life of trading stocks.

This is a paid post. Skylar Hammond is a writer for True Trader who specializes in topics such as stock trading, personal finance, and forex. He focuses on helping beginners and experts alike learn more about the market and improve their trading skills.