Swing Trading Explained

What is Swing Trading?

Definition of Swing Trading

Swing Trading is trading style in which traders attempt to make profit in a short range of time generally one day to a week. Swing trading is based on technical analysis to identify stocks that have short-term price momentum. Swing trading does not emphasize on the fundamental value of the stocks, hence swing traders are not very concerned of the fundamentals of the stocks but on the price movements in a specific range of time.

Picking the Right Stock

The first and the most important step to Swing Trading is picking the right stock. You need a stock which is actively trading and thus have some swing action in its price. It needs to swing between its low and high extremes to be a candidate for Swing trading. So look for a large-cap stock, which usually tends to be an actively traded stocks on major exchanges. As a swing trader once you have identified such a stock you can trade it for your advantage.

The Right Market

Second important thing to note is to identify the right market. Is it a bull market which is good for long term trend trading or is it a bear market which is also good for long term trend trading. In a bull market or a bear market usually it’s a trend and the momentum of the market will carry the price of the stock on one direction for a long time, which is not an ideal situation for Swing Trading.

So best market for swing trading is when the market is ideally not in a trend. It is in this market that the prices rise and fall as a cycle within a range and a good opportunity for swing trading. Its in this market a Swing Trader makes money even though the overall market has gone nowhere in a month or so.

Identifying the trading Range

Identify a trading Range on the Chart for the stock you are trying to trade. For example you can use the 13 SMA and 30 EMA lines on your chart. The area between these lines can be used as a range where you look for your stock prices to play out.

If the 13SMA is above the 30 EMA, lean towards long positions

If the 13SMA is below the 30 EMA, lean towards short positions.

Take Profits

Any trade without an exit strategy will make no profit, so you need to have a defined exit strategy and book in the profits. As the price reaches its upper range or the lower range as expected, sell it and make profit. If the stock is showing some strong trend in a direction, you can let it run for more and book profit accordingly.

Swing Trading can be exciting and if done right, can make some profits. Enjoy your trade and make sure to post your comments below. Also if you like it, Please do share it.

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