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HomeMarketSwing Trading 101: All You Need To Know

Swing Trading 101: All You Need To Know

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Swing Trading is a technique that entails traders buying and selling stocks for more than 24 hours. This method (learn more) can be longer than its usual counterpart—day trading, which can last for a set number of hours—but shorter than position trading, where assets are held for years. One example of this technique is real estate.

How Swing Trading Works

This method entails looking at the trends in stocks and commodities, which may take 24 hours or more. The goal of this trade is to profit from a stock’s movement at a given time. This encourages traders to predict where an asset may move, enter a position, and then benefit when the expected move happens. This can be done with both active stocks and sedate stocks.

The Two Rights Of Swing Trading

1. Right Stock

One way to succeed in this type of trade is by choosing your stocks wisely. The correct type can often lead you to more significant gains. An example of this is a large-cap stock. Large-cap stocks are shares held by giant companies or those with market capitalizations of almost $10 billion or more. These stocks are by far one of the most actively traded stocks in most exchanges.

When observed on the market, these stocks will have erratic trends, usually an extreme high or an extreme low. Compared to other traders who make a 25% profit while waiting for a couple of months, traders can gain a single-digit profit per week. When these profits are accumulated in the long run, it is seen that traders take the lead in gains and profits.

2. Right Market

The swing trade couldn’t thrive in two extreme markets: the bull market and the bear market. The former is characterized by increasing prices often happening for long periods, meaning there are no rising and falling trends that Swing Trading (link: https://tradingreview.net/) is famous for. The same can be said with the latter, but often entailing falling prices and negative investor sentiment.

Thus, the best markets for this trade should be those that don’t have a clear direction. It’s best used for markets that may rise once and fall the next, repeating this cycle for a few weeks.

Swing Trading Vs. Day Trading

Both swing and day trading have some similarities—one major similarity they share is profiting from short-term stock movements. Whichever the trader chooses, it should be based on their skills, lifestyle, and preferences. So what method suits you better? Read on to find out.

Day Trading

This consists of making multiple trades in 24 hours or at a designated time. These trades can be based on charting systems and technical analysis. The main objective of day traders is to make a small profit from various trades and cap losses. This can reach its potential for those who possess the right characteristics, such as discipline, determination, and decisiveness.

The US SEC (Securities and Exchange Commission) has found that many day traders incur large losses in their initial months, and most don’t last until the profiting stage. They suggest not spending money you’re not ready to lose, but the reality is losses of money they never had in the first place (loans from family, relatives, and savings). This method can put you in significant debt if you’re not ready for it.

Unique Characteristics Of Day Trading

1. Day traders can work independently, tweak their schedules, and take a break anytime they want.

2. Traders like the thrill of testing their wits against other traders and professionals in the market. It can be accounted for by the adrenaline rush similar to gambling, where large losses and gains can happen, but instead of luck playing around the game, it’s intelligence and wit.

3. This type of trade is a full-time job, so most of these traders often quit their 9-to-5 office jobs to take on the new lifestyle.

4. Besides the adrenaline they feel, there’s the stress of monitoring multiple trades on various screens as well. A profitable day trader should be quick enough to spot opportunities and exploit them on time. Traders are thus very susceptible to burnout.

5. There is no pre-requisite education to be this type of trader—only characteristics like wisdom and unhesitant risk-taking.

Swing Trading

Swing trading trading

This trade’s meaning has been defined below, but what are the benefits to this compared to Day trade? For one, swing trading can be done part-time if you’re not ready to let go of your steady paycheck. It can also be done alongside day trading. It also has a significant difference in the holding position’s duration, as it can last longer than day trading is less than 24 hours.

However, swing trading doesn’t need any requirements to pursue it properly. With substantial investment knowledge and capital, you’ll be able to try this method. Because of the nature of its duration, you can avoid being stressed and looking at trends all day. You can go about your regular job in the day and focus on the trade at night or between work.

Unique Characteristics Of Swing Trading

  • Trades need time to grow, thus leaving commodities open for their potential increase and decrease. This can result in more significant profits compared to Trading in 24 hours.
  • It relies on trends and momentum indicators compared to day trade.
  • Maximum leverage for swing trade is twice as than one’s capital, while day trade is a booming 4 times more.
  • Because swing traders can stay in the position for some days, they are also open for more substantial losses parallel to their gains.
  • Swing trading only requires simple tools and a single monitor. It doesn’t need up-to-date requirements for day traders.

Which one is for me?

Both methods can bring significant losses and gains, but it ultimately depends on your personality, capability, and availability. If you are financially stable, you can try your hand at day trade, making it your new full-time job. If you opt to make extra cash on the side while you continue working, swing trade can accommodate you perfectly.

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