Swing trading is where you hold a position in a stock for a number of days or weeks. As with any form of trading, the objective is to earn a profit. Who can truly reap the benefits of swing trading? Should you be into swing trading even if you’re primarily a day trader? These are just a few of the questions that we’re going to answer here.
The Key to Success as a Swing Trader
Many novice day traders use a very simple strategy. They try to find which stock is on the rise to buy a position. Once they are there, they hope and pray that it continues to rise until they can earn a profit. That’s usually not a winning strategy, but there’s a reason why many people start out this way. You think that you don’t need to know how to read different indicators in the market or even monitor the news cycle around a particular stock. In a sense, you don’t care why the price is going up, just that it continues to do so.
As mentioned, this strategy can be poor at best in day trading. Using the same approach to swing trading is worse than being in a casino. One of the main benefits of swing trading is that you’re ideally going into a position with enough information that can back your predictions. At times, it’s even best to purchase a stock while its value is not yet on the rise. Yet, since you analyzed the market indicators and monitored the news cycle, you’re making an educated guess that the price will move in the direction that you hope it will.
What are the keys then to success as a swing trader? Making a good analysis of the stock price pre-purchase is one of the main things that will allow you to be successful. Another thing that you have to keep in mind is the external factors that could come into play. A perfect example is when a company is going to show quarterly reports publicly. There’s usually some buzz around these days before it happens. When people feel that the numbers are going to be positive, the stock price tends to go up.
Understanding Your Exit Points
One of the things that worries people about swing trading is the fact that you’ll leave the stock unattended for periods of time. It’s not like day trading, where if you have a position open, you’re likely glued to the screen. In swing trading, you may even hold a position over the weekend, for example. Any time that the market closes, there’s a chance that the conditions will completely change by the time it opens back up.
That’s why it’s key to set up a few exit points beforehand. Maybe you’re just not comfortable holding the position over the weekend, for example. If that’s the case, then there’s no shame in making Friday your deadline. Could you leave money on the table if you do this? Yes, that’s always going to be a possibility, but it’s okay if you’re not willing to take the risk. Keep in mind that swing trading is not as hands-on as day trading.
Therefore, you have to learn to “let go” a bit more. That can be an ironic thing to say, particularly since swing traders who make a good analysis feel more in control of the situation. In a sense, that’s the point of swing trading. Your faith is in your analysis and not your ability to read market indicators at 1 or 5-minute intervals.
Learning How to Read the Market Is One of the Main Benefits of Swing Trading
Is swing trading something you should be doing, even if you’re regularly a day trader or just someone who invests long-term? One of the main benefits of swing trading is that it forces you to learn how to interpret different indicators. Another element that’s super important is interpreting the news cycle. As mentioned, day traders sometimes outright ignore this. It could be one of the main reasons why they’re blindsided when a stock seemingly dips out of the blue.
Swing trading could be something that you look into as a part of a learning experience. The reality is that the more you know about the market, the better your predictions will become. That’s true about learning different forms of trading. It can also be true when you decide to experiment with stocks that you don’t usually trade. This form of trading can be a great testing ground for day traders. That’s one of the benefits of swing trading that goes beyond making a profit.
It’s certainly hard to justify to traders that they need to invest in something that may not turn a profit right away. If you want to learn the ins and outs of this type of trading, be sure to sign up for our 60-day boot camp. Here, you’ll find more benefits of swing trading and ways to develop strategies that can help you read the market and ultimately turn a profit!
