Swing trading is one of the most popular trading styles because it offers a balance between the fast pace of day trading and the patience required for long-term investing. In this guide, we will cover everything you need to know to get started with swing trading.
What is Swing Trading?
Swing trading is a style of trading where you hold positions for several days to several weeks, aiming to capture short to medium-term price movements. Unlike day traders who close all positions before the market closes, swing traders are comfortable holding overnight and through weekends.
The simple version: Swing trading means buying a stock (or other asset) and holding it for a few days to a few weeks while you wait for the price to move in your favor. You are trying to catch "swings" in the market.
How Swing Trading Differs from Other Styles
Swing Trading vs Day Trading
Day traders open and close all positions within the same trading day. They never hold overnight. Swing traders, on the other hand, hold positions for days or weeks. This means swing trading requires less screen time and is more suitable for people with full-time jobs.
Swing Trading vs Position Trading
Position traders hold for months or even years, focusing on major trends. Swing traders have a shorter time horizon, looking to profit from smaller price movements that occur within the larger trend.
Example of a Swing Trade
You notice that stock XYZ has pulled back to a support level at $50 after trending up from $40. You believe the uptrend will continue.
- You buy 100 shares at $50
- You set a stop loss at $47 (below support)
- You set a target at $58 (previous high)
- After 8 days, the stock reaches $58
- You sell for an $800 profit (minus fees)
This is a typical swing trade: you identified an opportunity, held for about a week, and captured a meaningful move.
Why People Choose Swing Trading
- Less time intensive: You do not need to watch charts all day. Checking your positions once or twice a day is usually enough.
- Works with a full-time job: You can analyze charts in the evening and place orders before the market opens.
- Larger profit potential per trade: Because you hold longer, you can capture bigger moves than day traders.
- Lower transaction costs: Fewer trades means less money spent on commissions and fees.
- Less stressful: You are not reacting to every tick. You have time to think and plan.
The Challenges of Swing Trading
Swing trading is not without its difficulties. Here are some challenges you should be aware of:
- Overnight risk: News can break after hours that moves your position against you before you can react.
- Weekend risk: Markets are closed for two days, but the world keeps turning. Events can happen that affect your positions.
- Patience required: You need to wait for setups to develop and let winning trades run.
- Gap risk: Prices can gap up or down at the open, sometimes blowing through your stop loss.
What You Need to Start Swing Trading
1. A Trading Account
You need a brokerage account that allows you to trade the markets you are interested in. Most brokers offer commission-free stock trading these days. Make sure the platform has good charting tools.
2. Starting Capital
Unlike day trading, swing trading does not require the $25,000 pattern day trader minimum if you are trading stocks. You can start with a smaller account. However, having at least $2,000 to $5,000 allows you to properly diversify and manage risk.
3. Basic Chart Analysis Skills
You need to understand support and resistance, trends, and basic chart patterns. You do not need to be an expert, but you should know the fundamentals of technical analysis.
4. A Trading Plan
This includes your entry criteria, exit criteria, position sizing rules, and risk management guidelines. Never trade without a plan.
Basic Swing Trading Strategy
Here is a simple strategy that many swing traders use:
- Identify the trend: Is the stock in an uptrend, downtrend, or range? Trade in the direction of the trend.
- Wait for a pullback: Do not chase. Wait for the price to pull back to a support level in an uptrend (or resistance in a downtrend).
- Look for a reversal signal: A bullish candlestick pattern, a bounce off a moving average, or increasing volume can confirm the pullback is ending.
- Enter the trade: Buy when you see confirmation that the pullback is over.
- Set your stop loss: Place it below the recent swing low (for long trades).
- Set your profit target: Aim for 2:1 or 3:1 reward-to-risk ratio.
Risk Management for Swing Traders
Risk management is crucial. Here are the rules every swing trader should follow:
- Never risk more than 1-2% per trade: If you have a $10,000 account, your maximum loss on any single trade should be $100-$200.
- Always use stop losses: Know where you will exit if the trade goes against you before you enter.
- Do not overtrade: Quality over quantity. Wait for high-probability setups.
- Diversify: Do not put all your capital in one trade or one sector.
Track Your Swing Trades Automatically
Pro Trader Dashboard syncs with your brokerage to track every trade. See your win rate, average hold time, and which setups work best for your swing trading strategy.
Common Mistakes to Avoid
- Not having a plan: Every trade should have a reason, an entry, a stop, and a target before you click buy.
- Moving your stop loss: If your stop is hit, accept the loss. Moving stops to avoid losses usually leads to bigger losses.
- Chasing trades: If you missed the entry, wait for the next setup. There will always be another opportunity.
- Ignoring the overall market: Even the best stocks struggle in a bear market. Be aware of market conditions.
- Trading too big: Start small. You can always increase position size as you gain experience and confidence.
Summary
Swing trading offers a great balance for people who want to actively trade but cannot watch screens all day. By holding positions for days to weeks, you can capture meaningful price moves while maintaining a normal life outside of trading. Start with the basics, develop a solid trading plan, and always manage your risk.
Ready to learn more? Check out our guides on the best timeframes for swing trading and key indicators every swing trader should know.