How Swing Trading Works

Swing trading is a style of trading in which the trader seeks to capture gains in a stock within a one to several day time period. These traders are not interested in fundamental analysis but instead review price trends and patterns to find stocks with short-term price momentum. This is a completely techncial approach to investing.

Day Trading v. Swing Trading

Swing trading falls between day trading and trend trading. While a day trader will never hold a stock for more than a day and a trend trader may hold the stock for up to several months, swing traders may hold a particular stock for several days.

How it Works

The basic approach to swing trading is this: a stock that has completed a price correction (an upward or downward adjustment) will often gather strong momentum in the opposite direction. The trader will often hold the stock for several days to give it time to capture this new momentum before closing the position.

Not only is the process repeatable, but the trader may choose to go long or short on a stock, depending upon the trend they are observing. The trader endeavors to interpret the length and duration of each swing to define the support and resistance price levels: those places where they can expect the stock to find increasing supply or demand.

Because of this, swing trading is not like a high-speed day trading effort. Instead, the trader is only holding positions that are making significant moves. Unlike the day trader, the swing trader does not need to be consistently engaged until the position is closed.

Seeking Larger Gains from Fewer Positions

Swing traders are not gambling on minor stock movements, but hold few stocks and seek larger gains from those. Because they make fewer trades than day traders, they pay less in brokerage fees (which eat away at profits).

The challenge for swing traders is in correctly identifying the type of trend they are observing and responding appropriately.

The swing trading daily routine

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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