How to Swing Trade?

As global financial markets continue to grow, many financial instruments have emerged for investors to trade. When full-time employees start looking for a part-time job that doesn't take much time, the financial market deeply attracts them.

There are many different trading strategies and styles in the financial market, and swing trading happens to meet the requirements of these people. Moreover, with the advent of advanced applications and technologies, swing trading has become simple and efficient.

What Is Swing Trading？

Swing trading is a trading method that aims to profit from short- to medium-term market fluctuations. Swing traders use various technical indicators to identify the direction of trends and thereby find trading opportunities. When technical indicators suggest a potential upward trend, swing traders enter the market. This trend may last for a day or even a week, but swing traders will only close their positions when the profit reaches a predetermined take-profit level.

Unlike day trading, where all trades are completed within a single day, swing trading may involve holding positions overnight.However, the success of swing trading is based on the assumption that market prices are in an upward or downward trend, allowing traders to find opportunities to enter the market.

Pros & Cons of Swing Trade

Financial Markets Suitable for Swing Trading

Swing trading is suitable for most financial markets, and whether you are a novice trader or an experienced professional, you can grasp the essence of swing trading. Each market has its own characteristics, so you should choose a market that suits you for trading.

Gold Market: The gold market refers to a trading market where gold is bought and sold, and coins are exchanged. Gold is traded as a commodity with an international trade nature, and as a global currency, it is used for international payments and settlements, i.e., with an international financial nature. Investors can buy gold in the financial market, not only to benefit from the rise in gold prices but also to hedge against the risk of inflation.

Stock Market: The stock market is a financial market with a large number of participants. Traders can choose to trade individual company stocks or stock indices, such as the S&P 500 Index and the Dow Jones Industrial Average.

Forex Market: The forex market is the largest financial market in terms of daily trading volume. Exchange rate fluctuations are closely related to a country's economic development and policies. The likelihood of a currency's exchange rate experiencing a unilateral rise or fall is relatively high, making it very suitable for swing traders.

Futures Market: The futures market primarily trades commodity futures, which can be categorized into three main types: agricultural product futures represented by wheat, corn, and soybeans; metal futures represented by copper, aluminum, tin, and silver; and energy futures represented by crude oil, gasoline, and propane.

Cryptocurrency: As an emerging financial market, cryptocurrencies are highly volatile, making them ideal for swing traders. However, it is essential to be aware of the risks when investing in cryptocurrencies. It is recommended that novice investors trade mainstream cryptocurrencies, such as Bitcoin, Ethereum, Dogecoin, and Ripple.

How to Swing Trade？

Breakout Trading Strategy

Breakout trading strategy is one of the most widely used strategies globally, but it requires a high level of technical analysis skills from traders. The essence of breakout trading lies in identifying and utilizing support and resistance levels. When the price falls below a support level, people usually expect the price to continue dropping, leading traders to enter a short position.

Conversely, when the price rises above a resistance level, people typically expect the price to continue rising, prompting traders to go long. In other words, traders use trendlines, support levels, and resistance levels, combined with chart patterns, to analyze whether a breakout is likely to occur. If the breakout is accompanied by increased trading volume, this strategy becomes even safer.

The chart below shows the exchange rate of USD/JPY. We can see that the exchange rate fluctuates between Support 1 and Resistance 3, but the lowest points of the fluctuations are gradually rising. At point A, the price breaks through Resistance 3. According to the breakout trading strategy, we would enter a long position at point A. As shown in the chart, after breaking through point A, the exchange rate continues to rise as expected.

Trend Trading Strategy

When trading with trend strategies, we can utilize support and resistance levels along with moving averages. Support and resistance levels are fundamental to technical analysis, typically representing the supply and demand relationship at a given price level. A support level indicates that demand exceeds supply at that price, while a resistance level indicates that supply exceeds demand. Support and resistance levels can be used for managing take-profit and stop-loss settings, as well as determining entry and exit points.

Trends are generally categorized into uptrends, downtrends, and sideways trends. Swing trading is most suitable for uptrends and downtrends. An uptrend is characterized by increasingly higher highs and increasingly higher lows in the asset's price. A downtrend is the complete opposite of an uptrend. In a downtrend, both the highs and lows of the asset's price become progressively lower.

The chart below shows the USD/JPY exchange rate, where we can observe a clear short-term uptrend. The highs are getting higher, and the lows are also getting higher. Swing traders can go long on the exchange rate during this uptrend. Next, we can use moving averages to select entry points. As shown at point A, where the EMA 9 crosses above the EMA 21, this crossover typically signals the beginning of an uptrend, making it an excellent opportunity to go long on the exchange rate at point A.

How to Control Swing Trading Risk？

When engaging in swing trading, traders should first pay attention to the choice of leverage. They should avoid using excessively high leverage to prevent position liquidation due to short-term fluctuations.

Secondly, investors should not invest in just one product; they need to diversify their funds across different types of financial products to mitigate the impact of black swan events.

Finally, if investors encounter extreme market conditions during swing trading, they can use hedging tools to reduce risk or promptly execute take-profit and stop-loss orders, which helps maintain a good mindset.

Conclusion

For those who have limited time due to their jobs, swing trading is a suitable choice. Swing trading does not require an in-depth study of complex fundamental factors; it only requires learning how to use a few technical indicators, allowing traders to enter the market at opportune times and wait for the results.

Swing traders usually aim to profit from significant market fluctuations, and during the holding period, there may be many instances of profit pullbacks or even losses. At such times, swing traders should maintain a good mindset and avoid making poor decisions based on short-term gains or losses.

Overall, it is important for traders to thoroughly understand the advantages and disadvantages of swing trading and to determine whether this strategy suits them in order to achieve the best results.

FAQs

What is the most important characteristic of a swing trader？

The most important characteristic of a swing trader is having patience and the ability to hold positions for an extended period. Throughout the process, traders may experience profit pullbacks or even losses. However, a qualified swing trader must not be swayed by emotions and should remain calm under pressure to avoid making poor decisions.

What is the difference between swing trading and day trading？

The biggest difference between swing trading and day trading is the holding period of positions. Day trading requires closing all positions before the market closes each day, whereas swing trading does not have a fixed closing time. If the market moves as expected within a day, the holding period might not exceed one day, but usually, swing trading involves a longer timeframe.

Is swing trading suitable for novice traders？

Swing trading is suitable not only for professional traders but also for novice traders with limited experience. Swing trading is not as complex or difficult to understand as some technical indicators; rather, it is an investment style that any trader can learn and master.