Do you actively trade in the stock market? If yes, then you are reading the right article since this will help you to understand the concept of swing trading and how that works for retail investors. So, first, let us try and understand this strategy and compare it with the others in the market.
What is swing trading?
In a nutshell, swing trading strategies refer to a combination of day trading and trend trading strategies. It is the best of both these strategies and is used for multiple small short-term gains, making the profit sizable. Swing trading is more about weekly gains in the margin of 5%, and these short-term gains usually come in handy against long-term gains of above 25% over a few months.
Swing trading vs day trading
This is a widely debated topic in investing, and swing trading vs day trading have different kinds of returns. However, these two may seem similar to a layman who reads the theory and keeps it there. But, to an investor, there is an ideological difference in both strategies, which is the time involved in holding a position.
When it comes to day trading, you should not hold a stock for more than one day. However, when it comes to swing trading, you will need to hold the position for two days, at least. This entirely revolves around the demand and supply of any security in the stock market today.
Swing trading strategies
Many seasoned investors prefer to use different theories of swing trading, like the Fibonacci retracement, where they understand the resistance levels, or the T-line trading method, where the traders create a T-line to understand when to buy or sell their securities in the market.
Advantages of swing trading
- Swing trading returns are usually fewer but more substantial than day trading, and this is one of the major reasons many new traders prefer to use this strategy to hold their positions.
- You can recover your losses quickly with this technique and create enough cash flow every week. This helps to set up and acquire other investments for your portfolio.
- You can also reduce speculations regarding trading since swing trading involves technical analysis and a study of the markets.
Disadvantages of swing trading
While there are no direct disadvantages of swing trading, still, since it is related to the markets, there are always chances that you can lose your money. This is because the markets respond to demand and supply and other forces that can reduce the prices of the stocks.
The bottom line
If you can afford to hold your position for more than a few days and work around the trends, you should consider trying swing trading. Remember to set your profit targets and use stop-loss orders to maximise profits and minimise losses in the market.