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What is Swing Trading?



Swing trading is a short-term market timing approach based on the economic axiom that “price seeks equilibrium”.

As the name implies, swing trading involves attempting to take advantage of price swings in a traded instrument for the purpose of making a profit. While theoretically swing trading is not governed by time but by analysis of the behavior of the stocks (or other instruments) themselves, the indicators that swing traders use to buy and sell cycle often enough for it to warrant the label short-term and practically speaking fall closer on the continuum to day trading than to buy and hold investing which can be held for years or even decades.

Swing trading is differentiated from day trading and buy and hold investing primarily by the amount of time the trading position is held. Swing Traders hold a trading position for a period of a couple of days to a couple of weeks. The holding period can vary and is dependent on the goals and risk tolerance of the individual trader. Though the practice of swing trading can be used in various types of markets and instruments such as stocks and shares, bonds, Foreign exchange (Forex) and commodities, it is most commonly used in stock market trading. In order to make a profit, stock traders must buy a stock at a lower price than when they sell it. Swing traders attempt to profit by predicting the point of support (when buyers outweigh sellers and support a particular price) or resistance (when sellers outweigh the buyers to stop prices from rising) which ensures the greatest swing in price and therefore the best returns.

As with all short-term trading models, swing trading is heavily dependent on timing and quick execution of trades. Swing traders usually use a brokerage account to execute trades on their behalf on the stock exchange in which the stock is being traded. The amount of time it takes for a requested trade to be made can make a great difference in the amount of profits a swing trader accrues. Conversely, responsive service by a brokerage can be a great benefit for a trader employing this method.


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