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17 Apr 2019


Many of us might have heard the term swing trading. But not all of us know what it really means. So, in this article we will be discussing about swing trading, its pros, followed by cons as well as difference between day trading and swing trading.
Swing trading is a manner of trading, in which the trade is carried on for several days to maximise the profit. It involves holding a position necessarily for more than one trading day. As this kind of trades is triggered due to a specific event, so it is not usually longer than couple of months. The trade can be associated with any financial instruments, but is most popular with stocks.
Swing traders primarily use technical analysis to find out suitable trading opportunities. Their goal is to capture a part of probable price movement. While some traders find out trades in volatile stocks, others look for stable stocks. But, the primary objective of both kinds of swing traders is to find out money making options.
Swing traders primarily use technical analysis, due to the short term nature of the trades, but fundamental analysis can also be used along with to make the conclusion more durable. For example if a swing trader witnesses a bullish trend in a scrip technically, they can fundamentally find out the reasons behind the trend. This will help them find a better exit point as technical analysis takes some time to give a proper signal.

·         Swing traders are exposed to the overnight and weekend risk of the volatile market. There can be a possibility of gap up or down opening due to the change in overall market conditions.
·         Swing traders can take profits or losses utilising their target price and stop on the basis of loss risk reward ratio or they can do so on the basis of technical analysis.
·         As swing trading involves holding a position for a short term due to a specific action. So, keep tracking the action regularly.
·         As the market never moves unidirectional, swing trading allows the traders to utilise the crests and troughs of market for making money. For example consider an instance when a stock is in up trend, and a trader is making money with the trend. Now when the trend reverses to a bearish one, swing trading allows the trader to close the previous position and initiate a new one.
·         A swing trader gets the reliability of clear boundaries on his/her side. As swing trades are monitored through technical analysis, the different levels on chart give a proper idea about the trend of the stock. Whenever the stock breaks a specific level the trader will know about the upcoming movement.
·         Swing trading requires less monitoring time than day trading. In case of day trading as the trends are quickly formed and destroyed. Therefore it becomes very important in such a case to continuously keep an eye on the charts. And nothing such is required in case of swing trading as it requires time frames of longer duration.
·         Sometimes, when the market moves in a range. In those times, swing trading proved to be a very good option.
·         The failure of technical analysis in some cases will become the primary reason for loss in swing trading. As swing trading primarily depends on technical analysis, therefore this reason is quite justifiable. It is a known fact that at least one out of ten times technical analysis backfires, the consequence of that has to be faced.
·         One, who is not an efficient technical analyst, will not be able to execute swing trades.
·         Swing trading requires a different mindset from intraday trading. This is a very necessary point which has to be kept in mind.
·         The trade positions are subjected to overnight and weekend market movement.
Day trading or intraday trading and swing trading are two types of trades, differentiated by duration of holding the positions. In day trading the position has to be closed in the same trading day in which it has been started. While in case of swing trading the position has to be carried at least overnight. Day trading positions are restricted to a single day. Swing trading involves holding the position for several trading days or weeks.
By holding the positions overnight, the swing traders are exposed to the unpredictability of market which causes gap opening. This is the reason why it is advised to the traders to initiate a swing trade with the investment amount which fits their risk appetite.
The leverage given by the brokers in swing trading is less than that provided in intraday trades. It is normally observed that the leverage in case of swing trading is 5x and 10x in cases of day trading. This means if the trader has 20,000 in his/her trading account, then he/she can take a trade of 100,000 in case of swing trading and 200,000 in case of day trading.
In case of day trading the trader has to continuously keep an eye on the charts owing to the smaller time frame. While in case of swing trading nothing such is required. As the time frame monitored in case of swing trading is much more, so a trader can skip few hours in middle followed by a proper stop loss.

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