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What is Swing Trading?

By John B Landers
Updated May 16, 2024
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Swing trading is a short-term technical trading strategy that is commonly used to trade stocks, indexes, and commodities. It refers to the buying and selling of these instruments to take advantage of brief trends that occur in the market. The objective is to profit from the tendency of short cycles in market activities, typically covering two to five days, during which prices will move up and down within a specific price range or trend. Often, certain patterns and indicators will take place, and a reversal will occur.

Experienced swing traders have learned to identify these market gyrations. Traders will usually sell stock if the price has gone up and forms a specific pattern that is also supported by pre-determined technical indicators, such as trading volume and the price distance in the daily trading range. In contrast, traders typically buy a stock after the price falls and creates a certain pattern. The intention underlying swing trading is to get ahead of, or predict, market reversals, and to time trades in opposition to the latest patterns and signals. This trading strategy takes advantage of the propensity of prices to fluctuate back-and-forth in brief waves.

Most swing trading strategies employ a contrarian approach to trading, which is rooted in the belief that buy and sell decisions made by the general public are typically wrong. As a result, traders can significantly improve their market timing by taking positions opposite the majority. Swing traders tend to buy when others are selling, and vice versa. Generally, these traders adhere to the well-known market idiom, “buy low, sell high.”

Swing trading is primarily a technical trading strategy. Traders may take into account fundamentals and other technical tools when they choose the stocks, commodities, or indexes they would like to trade. Fundamental and technical theories are not infallible; traders must watch the instruments they are considering trading and become familiar with their short-term as well as long-term trends. For making buy and sell decisions, the trend is the most significant factor to take into account when selecting instruments to trade.

One characteristic of swing trading is that buy and sell decisions, or “set-ups,” are usually based on chart patterns. Signals at the end of the day or at the opening of trading the following morning are also considered. Some of the indicators that may be closely watched by traders include the opening and closing prices, the day’s trading range, the volume, and the trading breath, or distance from the high price to the low price.

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