What Is Swing Trading? Understanding the Basics

Disclosure: This article is for education purposes only and is not a recommendation. Open to the Public Investing, Inc. does not offer technical analysis, margin, and does not support trading with unsettled funds. Full disclosures are available at public.com/disclosures.

Table of Contents:

  1. Swing Trading Advantages and Disadvantages
  2. Best Indicators for Swing Trading
  3. Swing Trading Strategy Tips
  4. The Bottom Line

As an investor, you’ll find various types of investing strategies, with each presenting its share of benefits and risks. For example, some focus on growing investments over long periods of time, while others target quick trades, such as swing trading.

So, what is swing trading? It refers to a trading style that focuses on profiting from market swings, usually over a period of a day up to several weeks.

Swing trading strategies may differ depending on risk tolerance. Aggressive traders seek out stocks that change quickly, while more conservative investors may look for less volatile stocks, which may make swing trading an ideal introduction into trading strategies.

There are a few things to consider when it comes to understanding short-term trading strategies and specifically swing trading. You may have heard of day trading and possibly trend trading. Swing trading would sit between the two of them.

  • Day trading refers to buying and selling a stock within one day.
  • Swing trading is making trades typically from a day to several weeks.
  • Trend Trading is making trades typically from several weeks to months.

Success in swing trading depends on your ability to see trends and identify where a stock’s price will move. Due to their high trading volumes, many traders focus on large-cap stocks.

Key Takeaways:

  • Swing trading relies on strategic thinking and the attempts to predict trends in prices.
  • Swing traders may use tools to assist in evaluating a strategy.
  • The method of evaluating stocks based on patterns and charts is called technical analysis and can be of value in understanding price changes.

Swing Trading Advantages and Disadvantages

Investing in the stock market has advantages and disadvantages, and swing trading stocks is no different. One tool available is called technical analysis, which is used to identify opportunities by looking at data trends of price changes and volume. It can help you establish whether you can benefit from trading those stocks.

Since this style of investing is about short-term swings, you’ll want to understand whether they are suitable for meeting your investment goals.

Here are some of the advantages of swing trading:

  • Investors who have limited work schedules can still participate.
  • Investors who want short-term swings but more time to evaluate stocks before trading can use swing trading, which provides more time for analysis than day trading.
  • Investors can take advantage of short-term swings to adjust their portfolio.
  • Investors using technical analysis can take emotion out of trading.

Here are some of the disadvantages of swing trading:

  • A rapidly changing market means trading positions are at risk during nights and weekends when unexpected events may occur.
  • You may not have the leverage you need for such short-term trades.
  • Investors have to be able to sustain volatility especially when the market is down.
  • You may restrict your capital for a more extended period of time than you’d like and miss out on long-term trends in the market.

Best Indicators for Swing Trading

Learning about swing trading may be tricky. Still, like any type of investing, the key is finding the strategies that work for your situation. One thing to look at is swing trading indicators which involve mathematical calculations of price movements based on historical data. There are a variety of indicators that include:

  • Moving average chart — is a tool that tracks price changes in stocks by plotting average prices over a period of time. The moving average is added as an overlay on a candlestick or bar chart that reveals the price data for each period of time.
  • Momentum indicators — measure the speed or rate at which stock prices change. Common examples include the moving average convergence divergence (MACD) and the relative strength index (RSI)
  • Trend indicators allow you to see the market’s direction and any identifiable trends.
  • Volume indicators — a very useful tool in showing trading activity that lets you see how many shares are being traded in real-time.
  • Market sentiment — is the overall feeling or tone of investors based on trading activity.

Another important strategy used in swing trading is chart patterns. The two main patterns include trend continuation patterns and trend reversal patterns.

Trend continuation patterns anticipate the continuation of a trend. The longer the pattern takes in developing and the more the price changes in the pattern, the more critical it is when the price breaks out either above or below the range of the continuation.

Swing Trading Strategy Tips

Finding the right swing trade opportunities can come down to choosing the right strategies. When you’re new to swing trading, they can assist in helping you to shorten your learning curve a bit.

Analytics tools that investors utilize include:

  • Fundamental analysis, which refers to a method of valuing stocks based on intrinsic value by looking at the underlying business and broader industry trends
  • Technical analysis, which examines statistical patterns on historical stock charts

Let’s cover some simple tips to get you started.

Choosing the Right Stock

Successful investing is all about picking the right stocks, which is easier said than done. One popular option is large-cap stocks, which can be traded actively on the major exchanges and shows 52-week lowest and highest prices, allowing you to adjust and make changes as they shift.

Choosing the Right Market

For swing traders, both bull and bear markets with their extremes may not offer the right opportunity to swing trade, so traders may find that the best time to trade is when prices rise and fall in short bursts over time—of course, identifying when to buy and sell may still be the challenge in seeing realistic swing trading returns.

The Exponential Moving Average

As a key part of technical analysis, an exponential moving average places significance on the most up-to-date data based on recent stock price changes that can be observed during a specific time period. It offers traders clear indicators for both entry and exit points when trading.


Reviewing historical data shows that swing trading works best when stocks can be traded above and below the baseline. To determine the baseline, investors use the exponential moving average, explained above, to chart the stock.

This allows the investor to see the direction of the trends and adjust their strategy. It’s important to note that as a swing trader, the goal isn’t to focus on one trade, so the timing doesn’t have to be perfect in buying at the stock’s lowest price and selling at its height. Swing traders can watch for the stock to hit its baseline and determine its direction before moving on it.

When To Take Profit or Cut Your Losses

As you would expect, swing traders want to exit their trade where they will make the most profit or need to cut their losses during a robust market. Direction trends tend to be stronger, allowing traders to wait for the stock to reach the channel line, which is a trading range between the support line and resistance line on a price chart, to make a profit or, if direction changes, decide to sell to prevent additional losses. In a weaker market, traders may want to take profit or cut their losses before hitting their channel line. The key is to use the indicator tools available to monitor the directional changes, and take the profit or cut losses before the price swing ends.

The Bottom Line

Swing trading is one of the opportunities that can offer investors interested in trading based on technical analysis an introduction to trading. But it’s not just for beginner traders as both intermediate and advanced traders can continue to learn with experience.

One of the benefits swing traders like is the ability to see how successful your trades are shortly after you make them which allows one to see if the trend was or was not interpreted correctly. This can be very interesting for those who fit the trading style.

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