The Definitive Guide to Swing Trading

Learn everything and anything about swing trading

Published under:
2021-09-23 08:57:06

Swing trading is a trading style used by traders who attempt to generate profits from swings in stock prices, forex rates, commodity markets, and more recently, cryptocurrency trading.

Swing traders hold their trade(s) for more than one day. As a result, a swing trade can last up to a few days or Traders use various trading strategies in order to be successful. When Swing Trading, how long traders hold their trade(s) is a key consideration. While some traders prefer short-term trades, others prefer long-term positions.

Swing traders generally hold their trade(s) for more than one day. As a result, a swing trade can last up to a few days or weeks, allowing the prices to undergo significant changes. This allows “the swing” (or price change) to take effect, and the swing trader can make reasonable profits.

Other trading styles under the holding period category include scalping, position and day trading. will guide you through swing trading, including the benefits, challenges, and how to trade using this strategy like a pro.

What is Swing Trading?

It is a trading approach whereby traders try to make short and medium price change gains over a few days to weeks. However, the holding period for swing trades does not go beyond a couple of weeks or months.

Typically, swing traders rely on technical analysis to identify and exploit trading opportunities. On occasion, they use fundamental analysis techniques to identify value trades before a ‘correction’ occurs.

While some swing traders target volatile markets such as forex or cryptocurrency – where there are frequent movements – other traders go for relatively stable stocks. It all depends on the trader’s experience, preferences, and risk tolerance. In both cases, swing trading involves identifying where the asset price would likely shift to, entering a position and managing the risk.

Simply put, swing trading is a well known trading strategy that involve traders looking for medium-term trading opportunities using several technical analysis methods. Successful traders focus on spotting a potential price change at the start of the swing (or reversal), and moving on to the next trading opportunity as soon the prediction has played out – whether profitable or not.

How Do Traders Go About Swing Trading?

Swing traders evaluate trades based on the risks and rewards involved. They analyze asset charts to identify trading opportunities, place stop loss and assess when to exit a trading session with profit. For instance, if a swing trader is risking $5 per share on an asset that can potentially produce $15 in profit, the trade has a favorable risk-reward ratio. Conversely, risking $5 to make $4 is not a favorable swing trading decision because of its unfavorable risk-reward ratio.

As a swing trader, one primarily uses technical analysis techniques to identify potential trading opportunities. The case is so because of the trading style’s short-term nature. Additionally, traders often use fundamental analysis strategies to enhance their ability to identify potentially profitable trading opportunities. For instance, if a trader identifies a bullish stock setup, they may be curious to validate that the asset’s fundamentals are favorable and worth the risk.

Traders using the swing trading strategy search for trading opportunities on daily charts. Also, they may watch 15-minute and 1-hour charts to determine a precise trade entry point and stop loss level. This way, they depend on technical analysis based on these charts to anticipate and make trades. If they get it right, they earn from the trade. Conversely, if the opposite happens, they lose the trade.

What are the Advantages of Swing Trading?

  • It is less time-consuming than day trading and scalping trading. The case is so because swing traders make a single trade that can run up to several weeks.
  • Since swing traders depend solely on technical analysis, it simplifies the entire trading process.
  • Swing trading optimizes short-term potential profit by catching the majority of the market swings.
  • It is more profitable since swing traders pay lesser transaction costs compared to day traders.

What are the Disadvantages of Swing Trading?

  • Swing traders frequently miss long-term market patterns in favor of shorter period market changes.
  • Sudden market reversal leads to substantial losses. In case of uncertainties, the opposite of your trade anticipation may occur, leading to significant losses.
  • Typically, trading positions can be affected by the weekend and overnight market risks. As a result, your swing trade(s) may not go as planned. This way, you may lose your capital.

Swing Trading vs Day Trading

As previously stated, traders using several trading styles based on their trade’s holding period. These two trading strategies have several similarities but differ in various aspects. For instance, in both swing and day trading, traders rely on technical analysis and complex chart systems to determine and anticipate their trading positions.

On the other hand, the main difference between swing and day trading styles is the holding time. Swing traders hold their trades for more than one day. On the contrary, day traders close their trading sessions before the end of the day. Typically, day trades close before the closure of the market.

Since swing traders hold their trades overnight, they incur unpredictable overnight risks like gaps down or up against their trading position. As a result, swing traders make smaller position sizes than day traders due to the overnight risks associated with this trading style. Therefore, two traders (a swing trader and a day trader) with similar account sizes will use different position sizes. For instance, a day trader is likely to use a bigger position size and can use a 25% of the day trading margin.

Typically, swing traders have access to a 50% of the trading margin. That being the case, if a trader is authorized for leverage or margin trading, they can only put up to half of the current trade’s value. For instance, if a trade’s value is $40,000, this swing trader can invest a maximum of $20,000. Therefore, this limit restricts how much a swing trader can put up in a single trade.

Swing Trading Tips

Swing traders primarily rely on multi-day chart trends and patterns to inform their trading positions. Some commonly used chart patterns include shifting average crossovers, head and shoulder trends, cup-and-candle patterns, triangles, and flags. Additionally, swing traders often use fundamental reversal candlesticks in conjunction with other market indicators to formulate a firm trading plan.

Eventually, individual swing traders devise a strategy and plan that offers them an advantage over other traders. This may involve searching for trading setups that result in potentially predictable shifts in asset prices.

Although it’s not easy and neither is there a setup or strategy that works at all times, the favorability of the risk-reward ratio drives swing traders’ decisions. A favorable risk-reward ratio implies that a swing trader only needs to win a few times to make significant profits over multiple trades.

Swing Trading Strategies for Beginners

Swing traders use different trading strategies to predict the next stock market moves. In most cases, each trader focuses on developing their ‘secret’ swing trading strategy. However, establishing this strategy can take time. That said, beginners find it hard to establish their own trading strategies, as they lack adequate experience.

If you’re a beginner, don’t worry because this section brings you a list of swing trading strategies for dummies. The following are some trading strategies used by swing traders that can help you trade like an expert:

Stock Split Power

This swing trading strategy is a major stocks booster for successful companies. Recently, Nvidia and Apple processed a stock split. Afterwards, the prices per share skyrocketed significantly. The psychology behind this trading strategy is that swing traders view the prices of shares as low, making it cheaper to invest. A company’s value doesn’t change because it sells more shares at a lower price. By multiplying the number of shares sold and the price, the company’s valuation remains at the same market cap.

Since the price of shares is low, it attracts more investors. The market attitude is positive at this point. Therefore, a long-term position may unfold, leading to significant gains should this bullish trend continue. This trading strategy does not rely on technical indicators. Instead, swing traders using this strategy monitor company news, focusing on stock split announcements.

Warning: Be mindful when using this swing trading strategy because of the so-called inverse stock splits. This case is whereby a penny stock company gives the impression that it is better valuated than its actual valuation.

Gap and Go Strategy

This swing trading strategy resembles the day trading style whereby traders trade assets gapping down or up on a higher relative volume. The trade’s intraday volatility is determined by the highest gap resulting from company news or significant earnings. Conversely, acquisitions and merger news often result in gaps and not volatility. The case is so because the actual price of shares for the acquisition and merger is announced earlier.

In swing trading, significant positive news leads to substantial up gaps. As a result, traders often tend to wait for these up-gaps to be filled. However, the positive news may entirely change the company’s outlook, and swing traders may stop buying stocks.

The gap and go trading strategy work because as stock prices increase, swing traders tend to develop a sense of fear of missing opportunities. Therefore, they start purchasing stocks at higher prices.

Note: This trading strategy requires swing traders to clearly define their trading rules, stop loss levels and profit targets. In addition, it’s vital to calculate your position size reflecting on the risks involved per trade.

Fibonacci Retracement Trading Strategy

Swing traders across the globe use various Fibonacci retracement instruments to identify levels to involve themselves in the stock market. The popularly used levels are 61.8%, 50%, and 38.2% retracements.

Typically, swing traders utilize their preferred candlestick trends at those levels to exploit well-known ratios. Although these ratios aren’t to the exact point, they provide general ideas. Therefore, traders look at areas that seem to be interesting venues to play reversal candles. Despite the numerous candlesticks that a swing trader can utilize, you should monitor the bullish candlestick at the 50% retracement level on a weekly-based stock chart, especially if you didn’t get the first move.

The bullish candlestick can drift the needle at the 50% Fibonacci retracement level because it measures from the swing high to the swing low. It confirms the support it holds. As a result, as a swing trader, you can start buying from there.

Trend Continuation Swing Trading Strategy

It’s worth noting that prices fall, increase, or alternate throughout the entire trading session. As a result, it forms a trend or pattern that reflects these changes. Swing traders monitor these trading continuation patterns and identify gaps to determine how they will trade. Swing traders use this trading strategy is when a company’s earnings report exceeds expectations.

After the announcement of the earnings report, the stock prices start gapping up aggressively from the typical market open. Such a pattern can be the beginning of a long-term uptrend. Although the market may often pull back due to various circumstances like fuel prices, the uptrend will resume. This continuation gap is the one that long-term swing traders exploit because it recovers back to the general prevailing pattern.

Since many swing traders using this approach primarily rely on earning reports, following the majority can help you realize profits. Typically, the earning reports help institutional and fundamental traders to establish their trading positions. This way, you can join the crowd and make more profits.

Types of Swing Trading

There exist multiple ways of swing trading. The four famous types of swing trading are retracement (pullback), reversal, breakdowns, and breakouts.


This type of trading involves searching for a price that will temporarily reverse in a larger pattern. Stock prices temporarily retrace to a previous price point before continuing to drift in a similar direction later. These reversals are difficult to predict and tell except for short-term pullbacks. While a reversal implies a change in the overall pattern, a pullback is denoted by a mini reversal or short-term reversal that occurs within a trend.

You can think of retracement as a minimal countertrend that occurs within a superset trend. All reversals begin with a retracement. That being the case, it’s hard to determine whether it is an actual reversal or a minor pullback.

Reversal Trading

This swing trading type depends on changes in stock price momentum. Swing traders anticipate a complete shift in the direction of the asset price and trade against the current trend. For instance, if a forex or crypto swing trader sees an asset currently having an upward pattern, they trade, anticipating the price to go down. At this stage, they may sell their assets at a higher price and buy them later when the prices are low. A reversal trading may be negative (bearish) or positive (bullish).


This swing trading approach involves taking a trading position earlier during a downtrend while targeting a price breakdown. Therefore, you enter into your trading position immediately an asset price breaks a fundamental support level.

Breakout strategy

This type of swing trading is the opposite of breakdown trading. You take your trading position at the nascent stages of an uptrend, looking for the asset prices to breakout. Therefore, you determine your trading position once the asset prices break a critical resistance level.

How Do You Swing Trade Stocks?

Since you’ve learned everything about swing trading, including various swing strategies and things that swing traders consider when trading, it’s time to review a step-by-step guide to swing trading.

Step 1. Open Your Live Trading Account

The first step is creating a live trading account that you’ll be using to trade. Many trading platforms exist, including IQ Option and 24 Option. These platforms allow users to create demo accounts that they can use to practice swing trading styles without losing their money. Once you feel confident and experienced enough to make an actual investment, you can switch to live trading.

Step 2: Conduct Market Research using Technical Analysis

This step is arguably the most crucial in swing trading. The case is o because it helps you identify trends and potential gaps that you can exploit to make profits. It involves the use of tools like pattern scanners to identify trends and inform their trading positions. These trends help you spot pattern reversals, retracements, and other crucial asset price signals that inform their swing trading decisions and efforts.

Step 3: Select the Asset that You Will Swing Trade

Upon completing your market research, determine the asset and period that you will swing trade. Establish a trade entry and exit strategy depending on your trading signal.

Step 4: Utilize Risk Management Features

Include a take profit and stop-loss order to help mitigate the risks associated with swing trading. Such risk management instruments help swing traders to keep their trades relevant and consistent with their trading style.

Step 5: Check Your Trading Position

Actively monitor your trade throughout the holding period. Beware of slippage and gapping and changes in the market sentiments.

Step 6: Exit Trade

This step is the final in the swing trading life cycle. If the trade had not closed through the stop-loss tool, close it according to your trading strategy.

The Bottom Line

Swing trading is one of the best and most popular trading styles for people with full-time jobs. The case is so because it can run for days, and traders do not have to closely monitor trades or make many trades in a single day. Swing trading allows traders to make significant profits after several days to keep them motivated. However, it’s worth noting that it comes with its risks. Therefore, you should consider including risk management tools like take profit and stop loss to mitigate potential risks.