Swing trading is one of the most popular styles of trading in the Indian stock market. Traders tend to capture short-to-medium-term gains in swing trading stocks in association with technical analysis, over a period of a few days to months. Swing stocks are traded using technical analysis because of their short-term nature.
As we talk about the concept of Swing trading, the first thing that strikes our mind is ‘Swing trade meaning’. Along with day trading and position trading, swing trading is one of the most popular styles of trading in the Indian stock market. Traders tend to capture short-to-medium-term gains in swing trading stocks in association with technical analysis, over a period of a few days to months. Swing trading for beginners is less intimidating as it’s less hectic than other trading styles. It allows traders to comfortably take advantage of short-term price swings.
Understanding Swing Trading
Swing traders usually follow the market trend hoping for the next price swing to move in the expected direction of profits. During swing trading crypto or any other financial asset, price retracement is a common phenomenon. Whenever the stock prices move up or down, swing traders capitalize on such movements for smaller gains and exit before any significant shift in trend. Even by following the best swing trading strategy traders make small profits if executed consistently throughout the week and incur substantial gains. The best time frame for swing trading lasts from 6 months to 1 year.
Swing traders assess the best swing trade stocks on a risk/reward ratio. Traders analyze where they will enter and place the stop loss to move out with maximum profits. Swing stocks are traded using technical analysis because of their short-term nature. Fundamental analysis helps in enhancing the technical analysis. If a trader identifies a bullish trend in a trading setup, they use the fundamental analysis to assess its favorable or improving nature.
Advantages of Swing Trading Stock
- It is less time taking and comparatively relaxing than even the best day trading stocks.
- Traders can capture the bulk of market swings as trading strategies generate maximum short-term profit potential.
- Traders can rely completely on technical analysis, thus simplifying the trading process.
- It is the best-suited option for those with a full-time job.
Disadvantages of Swing Trading
- Trade positions are open for overnight and weekend market risks because of short term trading.
- Sudden market swings can result in substantial losses.
- Traders often miss long-term profits while following short-term market trends.
Swing Trading Strategies
As per the swing trading forex, average swing traders don’t focus on weekly or monthly gains, rather they tend to capture the gains incurred from 5-10 days of trading. If you consider swing trader reviews on average, they tend to consider the 5% to 10% weekly gains that add up to their realistic swing trading returns instead of the 20% to 25% of monthly targets.
The best trading strategy to maintain sound portfolio management of a 3-to-1 profit-to-loss ratio is to take quicker losses at a maximum of 3% to 4% instead of the normal 7% to 8% stop loss. Even the top-authored swing trading books also suggest maintaining a balance of profit and loss ratio as an outsized loss can easily wipe away the progress made through smaller gains.
Swing Trading VS Day Trading
The basic difference between swing trading and day trading strategies is the holding time for the positions. Swing trading involves holding the stock for a minimum overnight time frame, whereas day traders close positions before the market close.
Swing traders are exposed to the unpredictability of overnight risks of gaps or swings in the stock positions. Even if both types of traders have similarly sized accounts, swing traders generally have a smaller position size as compared to day traders because of being open to overnight risks. Day traders have a larger position size and can use a day trading margin of 25%.
Best Technical Indicators for Swing Trading
Swing trading indicators are mathematical trading charts that allow traders to identify the trade signals in the market. Traders look for multi-day chart patterns, which involve triangles, moving average crossovers, head and shoulders patterns, key reversal candlesticks, cup and handle patterns and flags to devise solid trading plans.
Swing traders tend to benefit from both the upswing and downswing of stocks. Below are some of the best indicators for swing trading that can help in both kinds of trends.
- Moving Average (MA) – It is the first technical indicator used for technical analysis of commodities and company shares. Swing traders use Moving Average to calculate the average of a stock’s price movement over a given period.
- Ease of Movement (EOM) – One of the best swing trading tips is that it is important to correlate price momentum with volume. If the EOM moves upward, it means that the price is also moving up, when EOM is below zero, it means the price is also falling in ease.
- Volume – If there is no change in volume, then the trend reversal indicator is false. This indicator helps to establish a change in momentum. The high volume shows the presence of real buyers and sellers in the market.
- Support and Resistance – These indicators are of great help in identifying market movements. Even the most successful swing traders prefer this. Support and resistance indicators create a price band between which the stock price moves. Swing traders use these two bands to plan entry and exit in the market.
