What is a swing trading strategy, and how can you use it?

What is a swing trading strategy, and how can you use it?

If you are familiar with trading in stocks, then you might have heard about swing strategy too. What does it mean, though? How can you use the swing strategy? Let’s discuss it together.

Swing trading is a strategy that focuses on getting smaller gains in short-term trends and reducing losses faster. The gains may be small, but they are consistently completed over time, and they can compound into excellent annual returns. Swing trading positions are usually held for several days to several weeks but can be stored for extended periods.

Understanding of swing trading strategy

Let’s begin with swing strategy basics. Unlike most stocks with a profit target of 20% to 25%, the profit target is a more modest 10% or even 5% in a more challenging market. However, these returns are not life-changing, but it is where the time factor comes in.

The focus of swing traders is not weeks or months of earnings; the average trade duration is more like 5 to 10 days. In this way, you can get many small wins, which will add up to a vast overall return. If you are satisfied with a gain of 20% in one month or more, a weekly or fortnightly gain of 5% to 10% can add up to a considerable profit.

Of course, you still have to consider the loss. Only if the loss is kept small, a slight gain can make your investment portfolio grow.

Swing trading can still bring greater benefits to personal trading. A stock may show sufficient initial strength to be held to obtain greater returns, or it may receive part of the profit while running the remaining positions.

Pros and Cons of Swing trading

Many swing traders evaluate trades based on risk/reward. By analyzing the chart of an asset, they determine where they will enter, where they will set a stop loss, and then predict where they can profit from. If they risk $1 per share on a setting that can reasonably generate $3 in earnings, this is a favorable risk/reward ratio. On the other hand, taking the risk of $1 and earning only $0.75 is not profitable.

Because of the short-term nature of trading, swing traders use technical analysis. In other words, fundamental analysis can be used to enhance the research. For example, if swing traders see stocks bullish, they may want to verify whether the fundamentals of the asset are favorable or improving.

Swing traders seek opportunities on daily charts. They usually observe 1 hour or 15 minutes charts to find a precise entry, stop loss and take profit levels.

Let us break down several advantages and disadvantages of swing trading:


  • It maximizes short-term profit potential by capturing most market fluctuations.
  • Traders can entirely rely on technical analysis to simplify the trading process.


  • Trading positions are affected by overnight and weekend market risks.
  • A sudden market reversal can cause significant losses.
  • Swing traders tend to miss long-term trends and tend to short-term market fluctuations.

What’s the difference between Swing trading and Day trading?

Lots of beginners might consider day trading and swing trading the same thing. However, there are a lot of differences, and let’s talk about them.

The ultimate goal of day traders and swing traders is the same: to generate profits. The holding period—and the technical tools used—is the cause of the difference.

As the name suggests, day trading involves multiple transactions per day. According to the Model Day Trader (PDT) rules established by the Financial Industry Regulatory Authority (FINRA), investors who have made at least four “round trip” transactions within five days are considered day traders.

Day traders want to profit from price differences. They may enter positions based on technical, fundamental, or quantitative reasons. Day traders want to make a living by trading securities and usually do not hold positions overnight.

In contrast, swing trading involves buying or short-selling securities and holding them for days to weeks. Swing traders understand that trading can take a long time to work. Unlike day traders, swing traders usually do not want to turn trading into a full-time job.

In addition, you can start swing trading with a small number of funds, and day traders are subject to the “model day trader rules.”

Which strategy works better: Swing or Day trading?

Sword trading is more accessible than day trading because you can set a more comprehensive stop loss and trade for a longer period.

But this does not translate into swing trading to become a more profitable foreign exchange trader.

Similarly, intraday trading is more difficult because you have to read the market hour by hour and interpret new data every day, which may exhaust many people after a few days. Although there are more trading opportunities during the day, this does not mean more profits.

Summing up

To conclude, awing trading is one of the best trading methods for beginners. It provides excellent profit potential for beginner, intermediate, and advanced traders. So, learn a bit about it, do the research. You will definitely find the swing strategy highly useful.

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