Swing trading
Swing trading is a short- to medium-term trading approach aimed at profiting from price fluctuations. Typically, a position in a financial asset is held for a few days before being sold. This strategy gets its name from the “swing” in the asset’s price as it moves from one level to another.
The core principle is to monitor price movements across various securities closely. By doing so, you can enter at an ideal level and exit shortly after with a profit. However, some traders opt to hold their positions for weeks, depending on their strategy.
Swing trading has some distinctions from long-term strategies, commonly used by institutional investors who may hold assets for many years. These investors leverage price fluctuations, selling only when the asset’s value reaches a significantly higher, mature stage.
What is swing trading?
A swing trade is a strategy where a trader seeks to capture efficient, short-term profits within narrow timeframes, thanks to the ease with which these trades can be executed and managed. Swing traders analyze price charts and other data to spot changes in an asset’s value, aiming to predict upcoming price moves to capture potential profit.
To succeed, swing traders need to familiarize themselves with technical analysis, using it as a guiding framework for decisions. Fundamental analysis is also essential, as it helps traders evaluate the asset’s fundamentals alongside technical insights.
Swing trading strategies
Swing trading strategies involve ‘buying’ when expecting a market rise or ‘selling’ when expecting a drop. Swing traders leverage market fluctuations, as prices move back and forth from overbought to oversold conditions.
Price action strategy for swing trading
Price action is a technique that focuses on price charts and historical data without relying on technical indicators. As swing trading is a short-term style, traders must be skilled at analyzing charts and trend patterns to identify optimal entry and exit points. By watching swing highs and lows on candlestick charts, price action traders can detect trends and reversals, gaining insights into possible trend changes.
Swing trading forex
Fluctuations in global currencies lead some traders to create forex swing trading strategies to profit from market crashes. These may result from economic or political instability in specific countries. Traders may buy low and sell when currencies recover, potentially supported by central banks or international lenders. Learn more about forex trading.
How to swing trade stocks
Swing traders aim to capture upswings and downswings in the stock market. This method is particularly effective in stocks due to the market’s volatility and its response to economic indicators and news events. For further insights, read our guide on five effective strategies for swing trading stocks.
Swing trading on margin
Our platform requires margin trading, also known as leverage, for swing trading. This means you need only deposit a fraction of the trade’s full value to open a position and access financial markets. Margin requirements vary by asset, starting as low as 3.3%. Overnight margin positions may incur a holding cost depending on trade direction and rate.
We offer spread bets and CFDs—leveraged products for both short- and long-term trading strategies like swing trading. These products allow traders to open larger positions, but it’s vital to remember that profits and losses are equally amplified. If the market moves against your position, the capital loss will reflect the full value, not just the margin.
Technical indicators for swing trading
- The relative strength index (RSI) is a widely used momentum oscillator to gauge market direction and detect overbought or oversold levels. The default period is 14 days but can be adjusted for swing trading.
- The simple moving average (SMA) is popular for trend identification and can be adjusted for different timeframes, making it suitable for both short- and long-term swing trading.
- The moving average convergence divergence (MACD) indicator reveals new trends and indicates whether they are bullish or bearish, measuring trend momentum and strength within the financial market.
Swing trading vs day trading
Swing trading is generally considered a medium-term strategy, while day trading is strictly short-term. Swing traders may hold positions for days or weeks, whereas day traders close positions within the same day. Unlike day traders and scalpers, swing traders don’t need to constantly monitor fast price movements.
Swing traders focus on trends spanning days or weeks rather than minute-to-minute fluctuations. They keep up with market sentiment and economic news to anticipate potential market direction. Understanding technical indicators on price charts helps traders decide when to enter and exit a position. Swing trading’s flexibility makes it a popular strategy. Less experienced traders may find it challenging to master, while seasoned traders can use their expertise for profitable results, though quickly exiting large positions isn’t always feasible.
Swing vs position trading
The main distinction between swing trading and position trading is the time horizon. Swing trading seeks to capture short-term price swings over days or weeks, while position trading involves holding assets for months or even years, following a longer-term trend.
How to swing trade
Our derivative products allow for swing trading, so explore spread betting versus CFDs to determine the best option. Spread betting, our most popular product, enables tax-free trading* in the UK. By opening a live account, you’ll gain access to our spread betting chart forum, stock data, and a variety of exclusive tools, where traders of all levels share market tips and swing trading strategies.
- To start swing trading, open a live account to deposit funds and choose the asset you wish to trade.
- Alternatively, open a demo account to practice swing trading strategies with £10,000 in virtual funds.
Swing trading as a part-time job
For day traders, trading is often a full-time job, allowing them to concentrate fully on trades. In contrast, swing traders balance trading with other commitments, as they don’t need to constantly monitor price charts for minor fluctuations. This provides flexibility to trade from home or on the go as a part-time activity.
Benefits of swing trading
- Swing trading is well-suited for individuals with full-time jobs who cannot dedicate hours each day to trading. This also means they have another income source if they incur losses.
- Wider stop-loss orders may be used, helping to reduce premature position closures.
- Unlike day traders who need to remain highly focused, swing traders operate at a slower pace.
- Swing trading can lead to higher returns by holding positions for longer, but holding costs must be considered.
Drawbacks of swing trading
- Knowledge of technical analysis is essential to determine entry and exit points. While this skill may come naturally to professionals, beginners may need practice in analyzing charts.
- Positions held overnight or for several days are exposed to “gapping,” where economic indicators may impact an asset’s price after hours.
- Holding positions for extended periods can result in greater profits but also greater losses due to leverage.
- Swing trading demands patience and can be stressful if trades move unfavorably.
Summary: Can you make a living swing trading?
Swing trading suits those who prefer short-term trading without the daily time commitment. It requires a solid understanding of technical analysis and can yield efficient returns compared to day trading. As with any trading style, risks are involved. Beginners should understand technical indicators and market fundamentals that influence their trades. It’s also wise to use a stop-loss to manage risk during unexpected market changes. Read more about money management in swing trading.
*Tax treatment depends on individual circumstances and may vary outside the UK.