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Swing Trading: Strategies for Beginners

Sebencapital

Published
29/05/24
Swing Trading | Seben Capital |


The goal of swing trading is to capture a chunk of a potential price move. While some traders seek out volatile stocks with lots of movement, others may prefer more sedate stocks. In either case, swing trading is the process of identifying where an asset’s price is likely to move next, entering a position, and then capturing a chunk of the profit if that move materializes.


Swing Trading and Technical Analysis

Identifying swing trading opportunities relies heavily on technical analysis techniques. One of the fundamental tools in a swing trader's arsenal is chart analysis, where patterns and trends are studied to anticipate future price movements. Chart patterns such as head and shoulders, double tops and bottoms, triangles, and flags can signal potential swing trading opportunities. We'll talk more about these later.


Advantages and Disadvantages of Swing Trading

Swing traders primarily use technical analysis, due to the short-term nature of the trades. That said, fundamental analysis can be used to enhance the analysis. For example, if a swing trader sees a bullish setup in a stock, they may want to verify that the fundamentals of the asset look favorable or are improving.

Swing traders will often look for opportunities on the daily charts and may watch one-hour or 15-minute charts to find the precise entry, stop-loss, and take-profit levels.


KEY TAKEAWAY

"Swing trading is about capturing the intermediate-term trends in the market and riding them to maximize gains."

Day Trading vs. Swing Trading

The distinction between swing trading and day trading is usually the holding time for positions. Swing trading often involves at least an overnight hold, whereas day traders close out positions before the market closes. To generalize, day trading positions are limited to a single day, while swing trading involves holding for several days to weeks.

By holding overnight, the swing trader incurs the unpredictability of overnight risks, such as gaps up or down against the position. By taking on the overnight risk, swing trades are usually made with a smaller position size compared to day trading (assuming the two traders have similarly sized accounts). Day traders typically utilize larger position sizes and may use a day trading margin of 25%.12


Real-World Example of Swing Trading


How to find the Best Stock for Swing Trading

Large-cap stocks make suitable swing trading candidates, as they often oscillate in well-established, predictable ranges that frequently provide long and short trading opportunities.

Swing trading offers advantages such as maximizing short-term profit potential, minimal time commitment, and flexibility of capital management. Key disadvantages include being subject to overnight and weekend market risk, along with missing longer-term trending price moves.


Written by devesh gupta

I am Devesh Gupta, a Junior Analyst at Seben Capital, where I specialize in finance with a focus on market research and data analysis. I support investment decisions by translating complex financial data into actionable insights. My role at Seben Capital allows me to contribute significantly to our investment strategies, leveraging my analytical skills to drive success.

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