What is Swing Trading? Guide for Beginners

06 Jun, 2022

5 min read


Understand the basics of swing trading and how it uses volatility within the market to its advantage.

Defining Swing Trading

Swing trading refers to a form of fundamental trading wherein a trader holds his position for a period that exceeds a single day. The trader employs technical analysis and enters into positions in a bid to capture short-term profits. These positions may be held for multiple days if not weeks prior to being exited. 

A large chunk of traders that practice fundamental trading are understood to partake in swing trading. This is owed to the fact that changes within corporate fundamentals ordinarily require a brief period of time to result in adequate price movements capable of generating a fair deal of profits. 

Assessing Different Trading Styles

Swing trading can be classified as a happy medium that lies between day trading and trend trading. To understand this better, consider how each of these trading styles has been broken down below.

Day trading often leads to holding periods that are fairly concise and amount to less than a single day. More often than not, a trader is likely to make the least profit per transaction here. 

Swing trading in contrast tends to lead to holding periods that are short to medium in their time frame. Profits drawn per transaction are higher in comparison to those drawn via day trading but less than those drawn from trend trading.

Trend trading tends to lead to the lengthiest holding periods. Owing to the least transaction volumes this trading style generates, a trader stands to make the highest profits per transaction.

Selecting Appropriate Stocks for Swing Trading

In order to succeed at swing trading, you must select the right stocks and two areas that ought to be considered relate to liquidity and volatility,

Large-cap stocks – which happen to be stocks that are traded with the most frequency on major exchanges – are ideal contenders for swing trading.  Within active markets, these stocks account for high transaction volumes. Stocks that aren’t sufficiently liquid can be hard to sell and may require additional price discounts. 

Swing traders stand to benefit from the volatility that exists within the market. Should prices remain stagnant the opportunities to make a profit dry up. Although there is a negative stigma that surrounds volatility, swing traders are reliant on it as they take advantage of a stock price rising. Stocks that are exposed to the greatest level of volatility are best suited to swing trading as they are ripe with profit.

Swing Trading and Market Environments 

Swing trading differs in accordance with the market trend that prevails. 

Swing Trading Within a Bear Market

Within this market trend, enacting swing trading can be difficult in the case of ordinary buy-and-sell trades. When there is a downtrend, there exists a dip over the long term in the case of equity market prices. Owing to this very fact, purchasing a security and holding on to it in the hopes that its price will appreciate over time is not advantageous. In order to avoid this scenario from arising, traders can make use of the following swing trading strategies.

Condense their period of trading. Rather that holding on for multiple weeks, traders ought to be prepared to have a faster turnaround on the securities they hold.

Traders should hold onto more cash and reduce the amount of capital that they would otherwise spend on trading. 

Buying puts and converting to options is recommended.

Swing Trading Within a Bull Market

Unlike bear markets, executing swing trading within bull markets is simpler owing to the fact that prices are likely to appreciate. This makes it easier for traders to purchase securities and gain access to profits within a short time frame. Traders ought to keep the following things in mind when they do execute swing trades within a bull market.

While this market trend prevails, traders will be expected to pay higher prices to avail of securities.

The chances of forming poor trading habits while bull markets exist is high. Traders must ensure that they carry out adequate market research and due diligence on the best securities. Further, just because a security appears good doesn’t necessarily translate into being a winner.

Provided traders have the threshold for risk needed to consider employing leverage, they should use it. 

Swing Trading Within In-Between Market Conditions

Swing trading is best executed when the market is in a transitionary position between bullish and bearish trends. While uncertainty plagues the market, traders have higher chances of landing themselves the best positions. Within this market condition, traders must keep in mind the following.

The volatility that transpires here can be taken advantage of particularly when it exists in both directions. When volatility favours one market direction alone, it can be harder to execute trades.

The in-between market condition is the safest for most swings trades.

Swing Trading for Beginners – Special Notes 

As a beginner, you will require capital upfront in order to enter into a swing trading position. Further, you will need to be adept with charting software and have a technical analysis set up organized. Finally, if you do wish to carry out swing trading you must first ensure that you understand the basics of simple moving averages and trading channels. 


​​Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.

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