Guide to Swing Trading Stocks

What is Swing Trading?

Swing trading is named after the strategy of taking advantage of brief price swings in strongly trending stocks and riding the momentum in the trends' direction. That is, buying if the trend is up or selling short if the trend is down. This is often called "riding the direction of the trend".

How does Swing Trading work?

The basic strategy of Swing Trading is to enter into a trade for a strongly trending stock after it the current consolidation or correction is completed. Very often, a strongly trending stock will make a quick move, after completing a correction, which can generate a good profit.

What are the benefits of Swing Trading?

Swing Trading offers the potential profits without the pressure and need to be glued to your computer all day long. It is a great strategy for part-time and new traders as well as traders who hold down a full time job doing something else and can't afford to get caught trading at work.

Day Traders make their money on minute changes in the price of a stock and may make hundreds of trades in a day. Swing Traders, on the other hand, stick with a stock for several days, usually, and sometimes up to a week or more. Since they make fewer transactions that day traders do, they pay a lot less in brokerage fees.

How do Swing Traders know when to trade?

Swing Traders react to up and down trends. An up trend is a recurring series of higher highs and higher lows, which shows that the stock is slowly gaining support for higher prices and, when the price falls, it does not fall as far as it did during the previous rally/decline cycle. A downtrend is a recurring series of lower highs and lower lows, or exactly the opposite of an Up trend.

When a genuine up trend is detected, they looks for a buying opportunity. The optimum time to buy is when the stock has a minor pullback during an up trend. They then buys the stock and implements a trailing buy-stop If prices break out above the trailing stop loss, the trader is stopped out and long in the trade. If prices fall then the buy-stop will not be activated.

When downtrends occur, they looks for an opportunity to sell shares. This typically comes when the stock shows a small rally during the downtrend. They then places a sell order using a trailing sell-stop technique. If prices trend further down, and fall below the trailing stop loss, the trader is stopped out on the short side. If the stock turns around, and the price goes up, the sell-stop will not be activated.

What a swinging way to make money!

Swing trading can be a lot of fun. Take your time and learn all that you can. There is never a shortage of new opportunities. You just need to wait patiently for the right stock to cycle...

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