Definition of Swing Trading
Swing trading is a form of trading that tries to focus on making small gains in medium to short term trends over a particular period of time. These gains despite being smaller can provide a significant amount of returns annually as they are made consistently over time.
Swing traders use technical and fundamental analysis to look for trading positions and opportunities. You should also analyse the price trends and patterns.
What is Swing Trading?
Swing trading basically involves holding a trading position for a limited period of time that may range from a couple of days to weeks. Sometimes it may extend to a few months. This is also a particularly risky form of trading as the trader is subject to both overnight and weekend risks.
As the trading opportunities are short term, the price gaps can alter overnight putting the trader at some amount of risk.
The choice of stocks you want to invest in completely depends on you, you can either choose rapidly moving stocks or sedate stocks that don’t have much movement. The goal is to identify what position the stock is going to shift next and gain the profit by selecting that position.
As we already discussed, swing traders usually opt for technical analysis as the trading positions chosen are short term, but they may also conduct a fundamental analysis. Using both technical and fundamental analysis would be a better option as it allows a more thorough and accurate analysis.
Swing trading is a bit of a risky trading option, but if you have a risk-taking appetite it may work out for you.
Advantages and Disadvantages of Swing Trading
As with any other trading option, swing trading has its share of advantages and disadvantages.
Advantages:
- The time required for trading is less.
- The short gains are made consistently over time, which gives you high annual returns.
- It’s a relatively simple trading process and you can use just technical analysis to analyse the trade position.
Disadvantages:
- Swing traders face overnight and weekend risks.
- Sudden changes in the market can lead to high losses.
