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Swing Trading: Overview, Setup, Technical Analysis and Strategies

Swing Trading: Overview, Setup, Technical Analysis and Strategies

Posted February 2, 2022 at 1:10 pm
Vibhu Singh , Rekhit Pachanekar
QuantInsti

Excerpt

Are you a 100-metre sprint runner or a marathon runner? Or somewhere in between? Or both? When it comes to trading, swing trading lies somewhere between sprint and marathon.

So if you don’t like running too fast or running for a longer distance, and you want to apply the same philosophy in trading, then swing trading is for you.

In this blog, we will focus on concepts of swing trading and create a swing trading strategy.

We will cover the following topics:

  • What is swing trading?
  • Swing trading vs Day trading
  • Swing trading setups
  • Which asset to trade in swing trading?
  • Which market to trade in swing trading?
  • Role of technical analysis in swing trading
  • How to create a swing trading strategy?
  • Advantages of swing trading
  • Disadvantages of swing trading

What is swing trading?

What is the first thing that comes to your mind when you look at these stock prices? Yes, the Apple stock price is going upward or rising and the Yes bank stock price is going downward or falling. But if you observe closely, the prices are moving upward and downward in a zig-zag pattern. These patterns are called swings.

When the price reaches a high level and then starts declining, it is called a swing high. Similarly, when the price reaches a low level and then starts moving upward, it is called a swing low.

Swing trading is the art of identifying these swing highs and swing lows and taking a trading position. The goal is to identify an overall trend and capture larger gains within it. For example, in the Apple stock price, you can take a long position when the price makes a new low which is around April 2020 and capture the gains.


Swing trading vs Day trading

Most people are confused between swing trading and day trading. Let’s understand the difference between these two and some of the properties of swing trading.

The main difference between swing trading and day trading is the holding period. Day trading is the buying and selling of the security in a single trading day. For example, you open a buy position when the market opens and close the position at the end of trading day.

However, in swing trading you hold the position from days to weeks. What that means is you open a position today and close the position in a few weeks.

On the basis of timeframe, we can divide the trading style in two more types.

  • Positional trading: This is a long-term trading style where the holding period varies from months to years.
  • Scalping: Scalping is considered as short term trading where you open the position and close it within seconds to minutes.
Trading StyleHolding Period
ScalpingSeconds to minutes
Day TradingDay only
Swing TradingDays to weeks
Positional TradingMonths to Years
Day TradingSwing Trading
Trading positions last a few hours or less. All trading positions should be closed at the end of the trading day.Trading positions last days to weeks.
There is no overnight risk.Overnight holding risks
Highly leveragedLess leveraged compared to day trading
Capitalise on small price movementsCaptures bigger price movements

Visit QuantInsti for additional insight on this topic: https://blog.quantinsti.com/swing-trading/

Disclaimer: All investments and trading in the stock market involve risk. Any decision to place trades in the financial markets, including trading in stock or options or other financial instruments is a personal decision that should only be made after thorough research, including a personal risk and financial assessment and the engagement of professional assistance to the extent you believe necessary. The trading strategies or related information mentioned in this article is for informational purposes only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from QuantInsti and is being posted with its permission. The views expressed in this material are solely those of the author and/or QuantInsti and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Day Trading

Day Trading can be extremely risky and may not be appropriate for individuals with limited resources, investment experience or low risk tolerance. Please review the Day Trading Risk Disclosure Statement before deciding whether Day Trading is appropriate for you.

Disclosure: Margin Trading

Trading on margin is only for experienced investors with high risk tolerance. You may lose more than your initial investment. For additional information regarding margin loan rates, see ibkr.com/interest

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