The trading style of swing trading is often described by how long you hold the trade. For yet I don’t think that is a very useful description.
To start off a more thorough definition, markets move in patterns which are also classified. As either trending or consolidating.
When a market is trending, the price puts in higher highs and lows in an uptrend and the opposite for a downtrend. The thrust in the main direction is also called an impulse move. And a retrace in price against the trend would be a corrective move.
We can substitute the word “move” for the word “swing”.
This graphic represents a trending market and in the uptrend, we have higher highs. And lows which is what you want in long swing trade. The downtrend is putting in lower highs and lows which is conducive to a successful short position. You want to make sure you are not trading a market in chop and we can use two indicators to help us out:
Avoid Choppy Markets With These 2 Indicators
As a swing trader, you would want to maintain a position in the swings marked “A” and when price begins to reverse as we see in “B”. This may be a time to exit your position. The term “swing trader” is better defined as a trader who takes advantage of the impulse moves that occur. And either exits or tightens positions during the corrective phase.
There is a time component but that is more dependent on the time frame you have chosen yet keep in mind that you can swing trade on intra-day charts. If that is the case, what we are doing is taking full advantage of the impulse moves that occur throughout the day. Knowing your limitations can help you decide which style of trading is right for you:
Swing Trading VS Day Trading
That said, you can swing trade corrective moves but you should expect to have lower profits in those moves unless you’ve caught the full turn in the trend Being able to position yourself in the beginning of a longer term move is a wonderful thing for your trading account. There are two patterns that can assist you in determining if the corrective move has the potential to be an impulse move.
Use Market Structure Like A Pro
In my swing trading, I use the daily chart to find positions. On this time frame, I am not in the arena of (high frequency trading). Computers or longer term players holding positions trades. Knowing your trading time frame is important and so is using higher time frames for context:
Multi-Time frame Market Analysis
Swing trading is about taking a short-term speculative position. Where we expect a clear and quick move to occur over the next few days. which is dependent on the time frame you have chosen. There are excellent day trading opportunities. In our experience swing trading is ideal for many markets. Including Forex, stocks and commodities.
Benefits Of Swing Trading
Swing trading has several distinct advantages over other styles such as day trading:
- It takes a few minutes per day to manage your trades, unlike day trading.
- Swing trading has plenty of time to place your trades and larger targets.
- You also tend to have larger stop placement. These trades tend to be less sensitive to small whipsaw that happens during the market day. Or with news announcements.
Another reason is due to their account size; they can’t afford the risk. Make no mistake, with any trading style your stop placement is vital:
Quick Ways To Set Your Stop Loss Order
Many state that swing trading is where they have found the most consistent success. There are many reasons for this the biggest reason is time. They don’t have the time for income producing trading style of day trading due to other commitments.
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