In the world of financial markets, swing trading has gained popularity as an effective strategy for traders looking to capitalize on short-term price fluctuations.

Unlike a long-term investing strategy or day trading, swing trading instead aims to capture the intermediate-term trends within the stock market.

Many online education platforms focus on giving aspiring traders the tools they need to succeed in this complicated and competitive marketplace. Let’s take a look at some of the fundamentals that new traders need to hit the ground running.

Understanding swing trading

Matt Choi is the founder and CEO of Certus Trading, a digital platform that provides comprehensive courses on various swing trading methods. Choi has been offering his advice and services to hundreds of online learners looking to improve their swing trading skills.

“Simply put, swing trading refers to a trading style that seeks to identify and capitalize on price movements, what we refer to as ‘swings’ within the given market,” said Choi.

Traders who use this strategy aim to capture gains over a few days to weeks by entering and exiting positions at key support and resistance levels. Unlike day traders, swing traders aren’t bound by the need to close those positions within a single trading day, allowing for more flexibility and reduced pressure.

The key principles of swing trading

For another great resource, new traders should check out the Corporate Finance Institute, which offers free explainers about many basics of swing trading.

Examples of key principles include:

1) Trend identification: Successful swing traders focus on identifying trends within the market to take advantage of price movements in the direction of the prevailing trend. This can be achieved through technical analysis tools such as trend lines, moving averages, and indicators.

“Traders use technical indicators to determine if specific stocks possess momentum and the best time to buy or sell,” CFI wrote in an article about the basics of swing trading. “To exploit the opportunities, the traders must act quickly to increase their chances of making a profit in the short-term.”

2) Entry and exit points: Swing traders aim to enter positions near support levels in uptrends, or resistance levels in downtrends. This helps to maximize profit potential while managing risks.

“Traders are strongly urged to always use stop-loss orders whenever they enter a trade, in order to limit their risk and avoid a potentially catastrophic loss,” according to a CFI article. “In short, stop-loss orders serve to make trading less risky by limiting the amount of capital risked on any single trade.”

3) Risk management: Effective risk management is vital when it comes to swing trading.

According to CFI, traders should determine their risk tolerance and set appropriate position sizes accordingly. Implementing trailing stops and profit targets can help protect profits while limiting losses.

Swing trading strategies

1) Breakout strategy: This strategy involves identifying stocks or assets that have broken out of a defined trading range or char pattern. Traders enter positions once the breakout occurs, anticipating a continuation of the price move in the same direction.

2) Pullback strategy: This approach has swing traders looking for retracements or pullbacks within an established trend. They enter positions at favorable prices during these temporary price dips, aiming to profit from the subsequent resumption of the trend.

3) Moving average crossover strategy: By using different timeframes of moving averages, swing traders can identify when short-term averages cross above or below longer-term averages. This strategy helps identify potential trend reversals and entry/exit points.

Essential considerations for swing traders

1) Time commitment: Swing trading requires regular and consistent monitoring of price movements, market news, and technical indicators. Traders should allocate sufficient time for analysis and decision-making.

2) Risk v.s. reward: Evaluating the risk-reward ratio for each trade is crucial. Swing traders should aim for trades where potential profits outweigh the potential loss, ensuring a positive expectancy over time.

3) Emotional discipline: Successful swing traders adhere to their trading plans, avoiding impulsive decisions driven by fear or greed. Emotional discipline, combined with sound money management, is key to long-term profitability.

“Swing trading provides an alternative approach to trading for those seeking to profit from short-term market movements,” says Choi. “It is essential to remember that swing trading, like any trading strategy, carries risks and requires continuous learning, practice, and adaptability. Aspiring swing traders should start with a solid foundation of knowledge and gradually refine their skills to navigate the dynamic world of financial markets.”