Swing Traders

Swing traders tend to spend longer monitoring stocks and considering investment opportunities than day traders. They may follow the markets for weeks or even months before making their move. In doing so, they aim to follow the momentum of the stock market and the individual stock in question when making a purchase. If the markets are moving to the upside swing, traders tend to buy stocks; when the swing stops or when they believe it to have topped out, they will sell.

Swing traders utilize both fundamental and technical analysis in their considerations. They typically specialize in a particular industry or business type so that they can best understand the movement within stocks of that type.

Because of the longer timespan in the decision-making process, and since swing trading does not require hours of daily monitoring, it is a good strategy for traders who wish to explore stock market trading without treating it as a full-time job. Swing traders could potentially complete their monitoring during a daily commute or lunch hour while working another job.

The core philosophy behind swing trading:

Swing traders believe that stocks go through four stages:

1. Basing: stocks consolidate as buyers and sellers move into equilibrium.

2. Advancing: a breakout moment from the first stage moves the stock into an uptrend.

3. The Top Area: the uptrend eventually stalls, and the stock reaches its maximum price. Stock traders may look for a head and shoulders pattern or a double top here.

4. Declining: the stock then falls into a downtrend as the sellers assume control, driving the stock to lower prices.

Swing traders expect that these cycles repeat for every stock and across all time frames. These traders believe that, if a stock is in an uptrend, and it closes above the previous swing point high and on an increased volume, then the trend is “confirmed,” meaning that it has a higher probability of continuing the uptrend. The point at which a pullback stops going down is the end of the cycle and the beginning of stage one once again. In this way, swing traders trade within stages.

Advantages of swing trading:

Swing trading offers a number of advantages over other types of stock trading.

• Anticipated returns for a swing trader are usually higher than those for a buy-and-hold investor. In this way, swing trading can be a good way to “trade for a living.” Still, though, swing trading is not a guarantee; like other forms of trading, it is susceptible to market fluctuations and cycles. Swing traders should expect good times and lean times both.

• Properly executed swing trades experience less risk than a long-term investor. Swing traders can allow losing trades to go by the wayside, while long-term investors have to ride out the bear market.

• Swing traders don’t have to watch market fluctuations in real time. They can do their market research in the evening or at their own convenience.

• Swing traders don’t have to closely pore over financial statements, to watch market tops and bottoms, or learn complicated trading platforms and software.

Swing traders keep things simple, following the basic rule: trade in the direction of the market. That means that, if the market is trending upward, trade long positions. If the market is trending down, trade short positions. Based on this simple principle, swing traders can be very successful.