Swing trading entails profiting from short- to medium-term market fluctuations. The danger of loss is greater with this type of investment since it is more speculative than it would be if you were striving for long-term returns in a diversified portfolio.
As a result, it raises the issue of what people should understand about swing trading before getting started. In the article, Roger Scott provides answers to these concerns and discusses other necessary information.
Trading Strategies
Statistical patterns and market data information for swing trading works best when applied with strategies. Examples of these strategies include Fibonacci retracements, support and resistance triggers, Japanese candlesticks, and MACD crossover.
Each one has a unique purpose which could vary between finding support and resistance levels, determining future price movements based on existing patterns, and other vital details that can help swing traders identify investment opportunities.
Volatile Stocks
Volatility is one of the critical traits swing traders should be on the lookout for. However, it could be both beneficial and harmful.
For the former, a stock with zero volatility is unlikely to climb much within a few days or weeks, which is the usual timeline to start and finish a trade for swing traders. Meanwhile, the latter suggests a stock with excessive volatility may experience price changes too quickly.
Based on this, just the right amount of volatility is needed, implying you must carefully conduct research to choose the right stocks.
Liquidity
Swing trading also requires understanding each stock’s liquidity. When the time comes, it will be simpler to sell those stocks with a large trading volume at your chosen price. Conversely, low-volume stocks could be harder to sell, forcing you to accept a lower price.
It is, therefore, wise to invest in stocks that are on the upswing and outperforming their peers in the same sector with a similar relative size. You will frequently hit your desired profit targets if you keep this approach at the forefront of your strategies.
Stop Loss
Setting a stop loss for any trade you make is very vital. You can select one below strong support/resistance zones, below the market structure, or use a trailing stop loss when in profits.
Other possibilities exist but wholly depend on the educated guesses you plan on making. Ultimately, implementing a stop-loss will ensure you do not lose all the money you have invested if the trade does not go according to plan.
Time Frames Switching
Swing trading requires holding positions for a more extended period than its counterpart, day trading. Therefore, you must utilize higher time frames to evaluate trades and shorter time frames to enter and exit the market.
Higher time frames are helpful for swing setups, have less LTF noise, and let you clean up the market structure. Lower time periods will produce a lot of noise, which is why they are best for entering or exiting the market.
Swing Lows/Highs
Knowing how to spot swing lows and highs becomes increasingly important as you develop swing trading expertise. This is mainly because your objective as a swing trader is to enter the market at a swing low and leave at a swing high.
If you see a trend that is favorable to your ongoing trade, keep in mind to ride it. Additionally, keep an eye out for pullbacks in line with the market structure so you can determine when to exit.