Swing Trading

What is swing trading?

Usually, markets rise and fall much like waves over a period of days or weeks. Swing trading is a form of trading that holds a financial instrument (such as stocks) for several days or even months in an attempt to profit from price fluctuations, or “market swings”. Swing traders utilize technical analysis to determine market swings. The essence of swing trading is buying or short selling stocks to capitalize on these small market swings.

Swing Trading Stocks

Here is an example of swing trading stocks:

Say you have been researching the market value and volume of Company X stock, and have been using the MACD (Moving Average Convergence Divergence) indicator as a trading tool. You notice that Company X’s MACD line crosses sharply above its signal line, indicating a bullish trend. You immediately buy shares of Company X and hold your position for five days. In that timeframe, the company’s share price rises 12%. At the end of day five, you sell your Company X stock for a profit.

It is crucial to understand that because there is the potential for volatility in the stock market, swing trading (and stock trading in general) is considered speculative and riskier than some other investment vehicles. Swing trading has the potential for significant financial loss and is NOT appropriate for all investors.

Swing Trading Strategies

There is no guaranteed fail-safe strategy when it comes to swing trading. Ultimately, any swing trading strategy must recognize the optimum trade entry point and exit level, in addition to implementing a stop-loss close to the trade entry point. Additionally, adherence to money management rules is critical for any individual who is interested in swing trading.

Here are examples of swing trading strategies that can be used to recognize trading opportunities.

MACD (Moving Average Convergence Divergence) Crossover

The aforementioned swing trading example, is what is referred to as the MACD Crossover strategy. This technical indicator is a popular swing trading strategy that assists traders in recognizing swing trading opportunities. The MACD is comprised of two moving averages: the “MACD line” and the “signal line”. If a company’s MACD line crosses above its signal line, this denotes that the price may increase, thus an optimum entry point for a buy trade. Conversely, should the company’s MACD line cross below its signal line, this could denote an optimum sell trade.

Utilizing Simple Moving Averages (SMAs)

Simple Moving Averages (SMAs) are technical indicators that can be utilized to formulate a swing trading strategy. A Simple Moving Average (SMA) enables a trader to easily analyze the price trend of a stock. This indicator supplies both support and resistance levels which could be signals denoting optimum trade entry and exit points.

Best Swing Trading Platforms

The simplest way for an investor to swing trade stocks is via a broker. Because there are numerous brokerages, the choices can be a bit overwhelming, especially for beginners. Here are some of the most popular and respected online brokers for swing trading.

Fidelity Swing Trading

Fidelity is a popular choice for investors who want access to equity trading, international trading, and IPOs. In addition, Fidelity offers comprehensive research tools and no commission for online US stock trades.

Charles Schwab Swing Trading

Charles Schwab is another popular choice for investors. The company has no minimum account requirements, $0 commission for online stock trades, and provides access to comprehensive research and trading tools.

**E*Trade Swing Trading**

E*Trade is a good choice for investors who want professional guidance, in addition to access to comprehensive research tools and market data that is intuitive and user-friendly.

Stock Trading Simulator

If investing in stocks is something that you are interested in, give this free stock trading simulator a try before leaping into the real-world stock market. It’s fun and informative and will help you hone valuable skills and techniques to become an effective trader.

Comparison Table On The Different Types Of Trading

Here is a comparison table examining the different types of trading.

Type of Trading	Best Suitable For	Risk vs. Potential Return	Control Over Investments	Research and Legwork Needed
Options	Active Traders	Lower-level Risk (When Done Correctly)	The investor has complete control over which companies are selected, and what options contracts are chosen.	All research and trading is done by the investor.
Stocks	Beginners and Long-term Investors	High risk, yet has the potential for larger gains	The investor has direct control over all invest decisions.	All research and trading is done by the investor.
ETFs	Beginners and Long-term Investors	Lower-level Risk	Professionally managed investment vehicle.	All research and trading is done by a financial professional. Investors are charged a fee called an "expense ratio".
Bonds	Beginners and Long-term Investors	Lower-level Risk	If investing in individual bonds (rather than bond ETFs) the investor has direct control over all invest decisions.	All research and trading is done by the investor, if investing in individual bonds.
Mutual Funds	Beginners and Long-term Investors	Lower-level Risk	Professionally managed investment vehicle.	All research and trading is done by a financial professional. Investors are charged a fee called an "expense ratio".
Futures	Active Traders	Medium-level risk (when done correctly)	The investor has complete control over which futures contracts are chosen.	All research and trading is done by the investor.
Swing Trading	Active Traders	High risk, yet has the potential for larger gains	The investor has direct control over all invest decisions.	All research and trading is done by the investor.
Day Trading	Active Traders	High risk, yet has the potential for larger gains if done correctly.	The investor has direct control over all invest decisions.	All research and trading is done by the investor.
Commodity Trading	Beginners and Active Traders	High risk, yet has the potential for larger gains	The investor has direct control over all invest decisions.	All research and trading is done by the investor.
Trend Trading	Beginners and Active Traders	High risk, yet has the potential for larger gains	The investor has direct control over all invest decisions.	All research and trading is done by the investor.

Swing Trading FAQs

How do stocks work?

Stocks are either traded on stock exchanges, or privately. Suppose, for instance, Company X makes very good chocolate. Company X’s products are so popular, that it wants to expand so it can sell its chocolate globally. Therefore, it must raise capital for the endeavor. Typically, to raise capital a company either takes out a loan, or issues shares of stock (deemed “going public”). Thus, by selling shares of stock to investors, Company X can raise capital without going into debt.

Say Company X wants to raise $1,000,000 to expand globally, and decides to issue 1,000 shares of its stock - thus, each share will represent 1/1000th of the company. When Company X goes public at the IPO (initial public offering), each share will therefore be worth $1,000. Presuming that Company X’s profits begin to increase, then its stock price typically will also rise. Conversely, should Company X’s global expansion not prove successful, then its value could decline, as could the market value of the shares.

What is an example of swing trading stocks?

This is an example of swing trading stocks to give you a better idea of this type of trading:

You have been researching the market value and volume of Company X stock, and have been using the MACD (Moving Average Convergence Divergence) indicator as a trading tool. You notice that Company X’s MACD line crosses sharply above its signal line, indicating a bullish trend. You immediately buy shares of Company X and hold your position for five days. In that timeframe, the company’s share price rises 12%. At the end of day five, you sell your Company X stock for a profit.

However, it is crucial to understand that because there is the potential for volatility in the stock market, swing trading (and stock trading in general) is considered speculative and riskier than some other investment vehicles. Swing trading has the potential for significant financial loss and is NOT appropriate for all investors.

What does MACD mean in swing trading?

The MACD is an acronym for “Moving Average Convergence Divergence”. This is a technical indicator that is a popular swing trading strategy, which assists traders in recognizing swing trading opportunities.

It is comprised of two moving averages: the MACD line and the signal line. If a company’s MACD line crosses above its signal line, this denotes that the price may increase, thus an optimum entry signal for a buy trade. Conversely, should the company’s MACD line cross below its signal line, this could denote an optimum sell trade.

Where to swing trade stocks?

The simplest way for an investor to swing trade stocks is via a broker. Some of the most popular and respected online brokers for swing trading (and stock trading in general) include Fidelity, Charles Schwab, E*Trade, and TD Ameritrade.

Research individual online brokerage firms to decide whether a “full-service” or “discount” company is the best fit for you. Full-service brokers typically have a hefty minimum account requirement, yet provide professional trading advice when requested. Conversely, discount brokers often have no minimum account requirement, but investors could face additional fees. All online brokers offer research and educational trading tools which is an added incentive for investors.

Best indicators for swing trading?

Some of the best and most popular indicators for swing trading include the MACD and a Simple Moving Average.

The MACD (Moving Average Convergence Divergence) indicator tracks the trend of a specific stock's price. This technical indicator is used as a trading strategy that assists traders in recognizing swing trading opportunities.

A Simple Moving Average (SMA) is basically the mean of data-points on a stock chart. This technical indicator lets traders easily analyze the price trend of a stock.

How do you read stocks?

There are three key factors to take into account when reading stocks.

1) When looking at a stock chart, gauge what the trend of the stock is. Whether the share price is increasing (uptrend), decreasing (downtrend), or essentially a sideways drift where there is little fluctuation in price.

2) Pay particular attention to the price and volume of the stock. Ultimately, it is large institutional investors that influence whether a stock price will rise or fall, by either buying or selling large quantities of specific stocks.

3) Determine whether a specific stock is being supported by large institutional investors such as fund managers, for example, or whether it is meeting resistance on an uptrend.

What are good swing trading strategies?

The MACD (Moving Average Convergence Divergence) Crossover is an example of a popular swing trading strategy. This technical indicator assists traders in recognizing swing trading opportunities.

The MACD is comprised of two moving averages: the MACD line and the signal line. If a company’s MACD line crosses above its signal line, this denotes that the price may increase, thus an optimum entry signal for a buy trade. On the other hand, should the company’s MACD line cross below its signal line, this could denote an optimum sell trade.

Another popular swing trading strategy is utilizing Simple Moving Averages (SMAs). SMAs are technical indicators that can be utilized to formulate a swing trading strategy. A Simple Moving Average enables a trader to easily analyze the price trend of a stock. This indicator supplies both support and resistance levels which could be signals denoting either optimum trade entry and exit points.

Swing Trading vs. Day Trading

Swing trading is a type of trading that holds an asset such as stocks, for several days or even months in an attempt to profit from price fluctuations, or “market swings”. Swing traders utilize technical analysis to determine market swings. The essence of swing trading is buying or short selling stocks to capitalize on these small market swings.

Day trading, on the other hand, typically involves being in and out of the market closing all positions (or "position squaring") on the same trading day.