Swing trading strategies can result in consistent profits, but only if you know how to pick the right stocks. Swing trading has become increasingly common because of predictable price action, but you don’t want to make an incorrect guess.
At first, swing trading might look scary. However, it comes with certain benefits, which I’ll describe below, and it can become a valuable way to improve your overall profits. Combine it with day trading strategies to maximize gains over time.
For now, let’s look at swing trading and how it works. Then I’ll talk about how to leverage this technique.
What Is Swing Trading?
Swing trading is a way to profit small amounts from short-term investments. You might buy shares in a stock on Monday and sell on Friday, for instance, based on how the stock’s price action “swings.”
Think of it this way: Most stock prices change. If they don’t, they resemble a horizontal line on a stock chart. Many stocks move up and down rapidly between support and resistance, which is where swing trading strategies come into play.
Ideally, you want to buy at the lowest possible point of a downswing and sell at the peak of an upswing. You decide to sell based on the stock’s price action and any news or catalysts that have been announced about the company.
You can swing trade many different types of securities, including penny stocks. The more practice you get, the more efficient your swing trading strategies will become.
Why Would You Want Smaller Profits?
Some investment strategies allow you to pocket hundreds or even thousands of dollars. You’re not chasing those kinds of gains with swing trading strategies.
Although you might bank more money with swing trading than with day trading strategies, you’re still looking for small, short-term gains that add up. Since swing traders aren’t bound by the pattern day trader rule, you can execute as many orders as you want without penalty.
It’s a risk-reward scenario. When you use buy-and-hold strategies with the hope of profiting considerably over months or even years, you assume more risk. Swing trading strategies help control risk by allowing you to exit your position at the first sign that the price action might move against you.
How Is Swing Trading Different From Day Trading?
Let’s separate day trading and swing trading strategies. They’re very similar, but swing traders hold their investments for slightly longer periods of time. You might keep your shares for several days or even a few weeks, depending on the price action.
Day traders, on the other hand, buy and sell their shares within minutes or, at most, hours. They’re capitalizing on very small profits based on patterns that repeat in the charts.
What Are the Best Swing Trading Strategies?
First, I recommend using candlestick patterns to spot swing trading opportunities. The bigger the “stick,” the greater the indicator for a profitable play.
You’re looking for stocks that have been moving consistently upward (or downward, when shorting stocks) between both support and resistance. In other words, you’re seeing support rise at approximately the same rate as resistance.
One of the most popular swing trading strategies is to wait for a breakout to result in a major downswing. If this pattern repeats, you can feel more confident buying the stock next time it cracks support. You then pay attention to the stock over days or weeks, depending on the pace of the price action.
The ideal time to sell is during a subsequent breakout. You have to time it right — it’s better to capture just part of the profits by selling early than to wait until the price falls.
Understand that news can come overnight that moves your stock’s price action against you. That’s the primary risk associated with swing trading strategies, but if you’re quick in the premarket hours, you can mitigate your losses should that happen.
Do Fundamentals Matter for Swing or Day Trading Strategies?
As mentioned above, the main fundamentals that should concern you when exercising swing trading strategies are overnight catalysts. You’ll want to pay attention to news related to the individual stock as well as its sector.
During the day, you can watch the price action and make decisions based on what you see in the charts. Since you’re holding shares for brief periods of time, you don’t need to dig deep into financial statements to help you make good decisions.
How Do You Know a Stock Is a Good Pick for Swing Trading?
Remember that price action is the only variable to watch when it comes to swing trading strategies. If you fall for the hype associated with pump and dumps and other schemes, you’ll likely lose money.
Try to follow the biggest earnings winners. You’ll often see them breakout at prices much higher than analysts predict, especially if there’s a lot of news about a stock or sector. It’s also a good idea to wait until you see a strong setup. Even if you buy in (or short) a stock a little later than you would have liked, you’ll still make money on the trade.
However, if you buy as soon as a stock price plummets without any indicators to suggest it will bounce, you’ll put yourself at risk. The setup matters. Consistent price action tells you when you’ve found a good stock for your best swing trading strategies.
Why Is Swing Trading a Less Stressful Way to Trade?
Swing trading strategies can take a lot of stress out of the stock market. Unlike day trading, swing trading doesn’t require you to watch a stock constantly between market opening and closing. You can let it ride for a few days until you capture another breakout.
How Can I Improve My Chances of Profiting From Swing Trading?
Your best bet is to paper trade first to learn swing trading strategies without putting your own cash at risk. Once you’re comfortable, open a small trading account and start looking for your first play.
Remember, you don’t have to trade. If you don’t find a great setup with a stock you think will continue an upward swing after a breakdown, don’t trade. Wait for something to come to you.
I also recommend subscribing to my newsletters, which will teach you more swing trading strategies and help you improve your chances of profiting. I share my vast knowledge with all of my subscribers, and the testimonials have been pouring in.
Learning swing trading strategies can take lots of time and research. However, you can cut down on the legwork by learning day trading strategies as well as swing trading directly from me. Sign up for Stealth Profits Trader and start benefiting from the stock market today.