Swing Trading: What It Is & How It Works
There are various ways to approach the stock market as a trader. Some investors go into the market looking to trade for short-term profits whereas others would rather hold their positions for an extended period and trade for long-term profit — swing trading.
When done right, swing trading can be extremely profitable for stock traders. However, before you get started, you need to have a firm understanding of what swing trading is all about and its various techniques used by stock traders.
Let’s dive in, shall we?
What is Swing Trading?
Swing trading is the term attributed to a medium to long-term approach to trading stocks. This approach to trading focuses on traders profiting off changing market trends over a set timeframe. In layman's speak, it means stock traders hold their position or assets for more than a day with the intention of profiting from price changes over this period of time. Swing trading is one of the trading techniques that require traders to familiarise themselves with technical analysis/price action setups on the chart.
How To Swing Trade Stocks Swing trading stocks can be done in several ways. This piece, however, dwells on three different ways you can identify entry positions for the stocks you are interested in trading.
● Using Moving Average(s)
● The Awesome Oscillator
● Support and Resistance Level(s)
Moving Average — Moving Average is a trading tool that helps traders smooth out price data by calculating new market average prices over a specific time period.
Let’s explain this using the 15 & 30 moving averages to explain how this works. The 15-day moving average adds up the daily closing prices for the past 15days and divides that by 15 to calculate the current day’s average. Doing this helps to cut out the noise in the market with regards to the stocks price chart.
The same is true for the 30-day moving average which adds up the prices for the previous 30 days and divides the result by 30. This calculation is the same for any other moving average you decide to use when swing trading.
It is always recommended that traders use two different moving averages when trading stock assets, and the traditional way of making use of two different moving averages is to note when the shorter moving average goes above the longer moving average indicating a bullish trend as well as when the shorter moving average goes below the longer moving average indicating a bearish trend.
The Awesome Oscillator — The awesome oscillator is a trading indicator used to measure the market momentum of a stock asset. It calculates the difference between a 34-day period and 5-day period simple moving averages. The Awesome Oscillator is generally used to affirm trends or to anticipate possible reversals in the market.
Support & Resistance — Support and resistance are predetermined levels of a stock asset price where it is thought that the price will tend to stop and reverse in direction. Support points are areas where a stock’s price reverses to the upside (goes long/bullish) while resistance points are areas in the market where a stock’s price reverses to the downside (goes short/ bearish). These are areas you want to pay extra attention to as a swing trader looking to enter into profitable positions in anticipation of a reversal in price direction.
What stock assets should you trade?
As a trader looking for the right stock to trade, it is important you take extra when entering into the market as getting into a “bad” market could reduce your profit margins, render your trading strategy null, and/or increase your unanticipated risk. To prevent these, here are a few ways to select the right stock asset to trade:
- Keep a close eye on the assets macroeconomic calendar event, as they give traders an insight about stock potential(s).
- 2. Look out for the financial statement or earnings report of the stock you are looking to trade.
- 3. Stick to your trading strategy and understand chart patterns. Looking to start trading right away?
Click on the link below to open a live trading account with Egmarkets today.
