Swing trading: It is a type of trading where the trader attempts to make profits out of the short time price movements by holding the securities for a period varying from 2-3 days to few weeks. It involves buying at low price with a hoping that the swinging pattern will make the security price high in few days/weeks after which profit can be made by selling at the higher price. When the securities are showing long term trends caused by fundamentally strong events, swing traders make the profit out of the price movements by holding it for a short time.
Features of Swing trading:
1. Trading approach:
Swing traders use the fundamental & technical analysis to evaluate the long term oriented trends and patterns in the price movements of securities. Their approach will be more of a fundamentalist than a day trader. One should be learned enough to quickly analyze the market for price movements that are stable and long term oriented.
2. Swing charts:
Swing charts are used to identify the price trends in short term. They simplify the effort of choosing the right stock at right time. So, it is very important for anyone to learn how to analyze these charts if he/she wants to be a swing trader.
3. Invest at right swing:
The success of swing trading is highly based on the time at which one invests in the stocks. Generally, the price of a security keeps on varying continuously. It moves upward for certain time after which it gets stabilized and then starts falling for certain time followed by an upward trend. This is the typical trend most shares go through. So, swing traders should invest in the stocks when they are about to take an upward trend from the low point.
4. Trade in only liquid stock:
Swing traders trade in highly liquid shares only. There is no point in buying a share that does not have the minimum price volatility.
Merits of Swing trading:
- Swing trading does not require you to spend a lot of analyzing the trends, patterns and fundamentals. Once you have learnt enough to read the swing charts, with minimum time very good decisions can be made.
- Swing trading is less risky than intraday trading. In case of intraday, one must put in a lot of efforts devising the strategy. But that’s not the case in swing trading.
- One doesn’t need to be a full time investor to earn through swing trading.
De-merits of Swing trading :
- Traders should have a greater investment discipline while indulging in swing trading. Decisions made once require time to show a behavior one predicts.
- In case of very high volatility driven by the large orders executed by bug players, chances of hitting the stop losses is very high.