What is Swing Trading

Before start discussion on what is swing trading, let us first discuss the various types of trading then we will move forward

Types of Trading

There are various types of trading like Investing, Positional etc, Below are the list of types of trading as per my knowledge and skill.

1. Investment

2. Positional trading

3. Swing trading

4. Short term trading

5. Intraday trading

These are the five major types of trading style as per my knowledge. Let us take short discussion on this.

Investment is a type of trading where we hold the stock for at least one year or more.

Positional trading is a kind of trading where we hold the stock for more then 6 month to one year.

Swing trading is a kind of trading where we hold the stock for 3 days to 10 days or max up to 2 or 3 week.

Short term is a kind of trading where we hold the stock for not more then three days.

Intraday is a kind of trading where we hold the stock for not more than a day, we have to cut the trading before day close i.e. by 3:30PM.

Here in this blog we will discuss the Swing Trading in details. so let us start

Swing trading is very special kind of trading were we try to capture the explosive move in short time in index or stock. In this kind of trading we are least concern about the fundamental of stock or security but we indeed are concern about the liquidity in the stock in which we are going to make position.

In this kind of trading we try to take advantage of any kind of stock market but we get maximum result in the trending market. So we can say that trend is our friend else we exit in least profit.

During ranging market the support and resistance are clearly visible and well defined. So there are ample opportunity even in ranging market. We by near support and sell near resistance with minimum risk of downside.

Example are given below

In this example you can see market is trading in a range, the upper band is resistance line and below you can see the support line.

We buy near support line and sell when it touches the resistance line with the vary minimal downside risk of our capital.

Why Swing Trading is so popular

Now a days Swing trading is become so popular because of its time flexibility and minimal risk.

Let us see few characterlike of swing trading

• Purpose - to generate regular monthly or weekly income.
• Execution - with the help of technical indicator/analysis.
• Time - no need to site in front of screen all the time, just analyze and put GTT(Good till trigger).
• Hold time - the average holding time is not more then 10 days but depending on situation it goes up to 4 weeks. 
• Trading turnover- not more than 4-5 trad in a week depending on the capital you have.
• Brokerage - depends on broker to broker.
• Peace of mind - great peace of mind as the risk is predefined.

Now let us discuss few advantage and disadvantage of Swing Trading.

There are many advantage of swing trading over other format of trading. It the swing trading done with proper data analysis and executed in disciplined manner it give us very good result with descent profit.

Normally the investor have lack of technical skill for such kind of trading and they keep their investment for long period even in the bear market.

The entry, exit and risk is clearly defined in swing trading that give us peace of mind.

Other advantage of swing trading is that it has a time horizon of very low, no need to check the trading terminal all the time.

The swing trading can be done with the existing job or business as it take 15 minutes weekly working to analyze data and filtering the stock.

It gives regular weekly of monthly income for daily needs.

Get result in very shot time that give happiness of winning in mind.

No need to check much fundamental detail of stock.

Lower transaction cost/charges is great advantage of this strategy.

Whenever we talk about The Swing Trading in any stock or security we think about three things.

• What to buy
• When to buy
• How long to hold
• When to exit
• What is the risk

As a swing trader one should be aware of all the above question. So we can say the technical analysis is very crucial for swing trading.

If you have knowledge of all the technical skill like support and resistance, demand and supply, candle stick, moving average, technical indicators etc you can easily get answer of these question and it these answer is clear the winning probability is increase.

There are many tools and indicators are available in the market but I would suggest just select few indicator like RSI, Moving Average, MACD, ATR, ADX, Fibonacci retracement. trend line is enough to give you the desired result. These must be used in combination with price action to get best result and accuracy comes with practice and time.

Let us discuss some technical skill in brief so that it gives us better idea to move further. Later we will see in details

Support and Resistance

This is very important tolls specially in swing trading. Let us define if technically. When a certain level is respected many times by price of a certain stock or security then is becomes support level.

On the other hand if any point or level fails to cross after many attempts it becomes resistance.

Such support and resistance can be easily seen in the chart. For example see below chart

 Stop Loss & Trailing Stop Loss

Once the trade is initiated and if the thing is not going as per analysis and as per our calculation, we have to follow a strict stop loss to limit our loss.

When the trade is going in our direction and we want more profit then we have to follow the trailing stop loss theory. It can be achieved candle by candle stop loss or as per analysis, we will discus further in this blog.

Chart Patterns

Chart pattern also play very crucial role in swing trading. There are various of type of chart pattern like trend continuation, reversal patter. Ascending triangle, descending, cup patter etc are the popular patter that we will discus later in the blog.

Below are example of ascending traingle

Study of Trend line

 The study of trend line is very important for swing trading. As you know when any stock advances it makes higher high and higher lows and when it decline it make lower lows and lower highs.

When we connect such line a line form that line is called trend line. Tre trend line give us a clear idea of the stock trend. Will discuss in details later.

Example of Trend line

Many indicators like RSI, MACD, Stochastic, Moving average, ADX etc helps a lot in the swing trading. In fact I would say, no one can get success without these tools.

RSI(Relative Strength Index)

This is the most important indicator and most useful in trading. It is used in almost all kinds of trading.

There are many level like 70, 50 & 30 or 60, 50 & 40. It oscillate between 0 & 100.

The RSI give different result in trending market and different in ranging market.

ADX(Average directional index)

This indicator shows strength of trend. If the number is less then or equal to 20 it means the trend is not strong on the other hand of its value is more then 20, 25, or 40,45 means the current trend is strong.

We will discuss in details later in this blog

In the last I would like to say Go Deep Not Broad. Mastering one or two tools is enough to get good result in the stock market.