Some investors don’t want to subject themselves to the volatility of intraday trading but want to still take advantage of short-term price movements. Such investors would benefit from swing trading where they can hold an instrument for a day or a few weeks.
With this kind of investment, you take smaller gains, cut losses quicker, and hold stocks for shorter time frames. For swing trading to work for you, you use technical analysis to get a picture of the trends in the market.
When you dive into swing trading, there are strategies that can increase your success rates. From our expert view, we’ve highlighted simple but effective swing trading strategies for beginners and experienced investors.
1. Capture the Major Trends
Trend trading provides a less volatile style for beginners to start swing trading. You recognize an uptrend by noticing the markets set higher highs and higher lows. Downtrends occur when markets move toward lower lows and lower highs. You need to recognize, catch, and follow a trend.
The hack here is that you need to find a trend (uptrend/downtrend), wait for a countertrend, and if the latter plays out as expected, make a trade. Ride on the momentum but avoid risks by closing your trade early before the trend moves against you.
2. Identify Breakouts
During swing trading, wait for the candlesticks to look bullish and big, then tag along. But there is a caveat — prices are volatile and can make 180-degree reversals. That is why you need to exercise a breakout strategy.
Breakouts involve entering trades when the momentum is in your favor. As soon as you observe a breakout (price moving outside a defined support/resistance), make a trade. The bigger the breakout candle, the better. Whenever the prices appear strong and the market looks very bullish, it is usually too late to enter the trade. Bearish swing traders will begin making sales, causing the prices to plummet.
3. Ride the Uptrend
You need to identify an initial upward trend that is part of a general uptrend. Wait for a pullback, then enter the market. Make your technical analysis to set your support and resistance. Enter the market and capture the swings that are in line with the trend.
4. Maximize Gains on the Upside
Enter a swing trade only when it appears that an uptrend is set to start. Bullish traders tend to wait until the securities trade higher than the previous day’s highest countertrend to enter the markets. Locate the lowest point of the pullback and set your stop loss there to prevent making huge losses.
When entering the market, look for trading opportunities with a high risk-to-reward ratio. Ideally, your potential profits should be twice as much as your potential loss. Otherwise, you’ll be making a risky investment.
5. Find Your Entry Point
The position where you enter the market determines your profit or loss margins. Since reversals can only occur after a swing point, identify these points before making an entry. Some bearish traders set a stop-loss at their entry points to prevent loss.
If you’re wary of intraday trading or long-term stocks, swing trading can be an easy way to make quick cash the moment you master trading strategies that work for you.