Explained: What is swing trading?

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Mutual fund investments look attractive but people like to stay away from them due to several preconceived notions. As a beginner, you can choose to adopt a certain strategy as the backbone of your investments. Swing trading is one of the trading methods wherein the trader can hold a position for more than 24 hours. It aims to profit from price oscillations or swings. Straddling between day and trend trading, swing traders look to gain profit from an asset’s price movement over a short duration. One can hold an asset for a period ranging between a few days to several weeks. The idea is to add up little gains over a certain period to produce a significantly large profit.

While other traders may need to wait up to five months to make a meager 25% profit, swing traders can make 5% weekly profit and can outperform other traders eventually. One needs to critically apply fundamental and technical analysis to spot patterns in the current market trends to predict a future and invest accordingly.

Swing trading vs day trading

Now swing trading and day trading seem almost identical to investment beginners. However, what distinguishes them is the time factor. Unlike day traders who enter and exit transactions within a matter of minutes and hours, swing trading continues over a period of days or weeks. Those trading for a few hours basically avoid experiencing any sudden market spike due to breaking news while swing traders must be prepared for such advancements as they look at the bigger picture. Hence, it has a bigger profit/loss margin compared to day trading.

Swing trading depends on technical indicators that are expected to lower the potential risks and let you take a rational call despite the market volatility. When you focus your investments on a particular trading style, it gives you a breather too. You don’t have to constantly monitor market fluctuations and follow your own strategy instead.

Important terms used in swing trading

Some frequently used terms in swing trading include entry point, exit point and stop loss. The point at which traders enter a trade position, as per various technical indicators, is known as the entry point. Whereas, the point at which traders square off their trade positions is known as the exit point.

Meanwhile, stop loss, that is designed to limit an investor’s loss, is a point when you buy or sell a specific stock as it reaches a certain price. For example, setting a stop-loss order for 20% below the price at which you bought the stock will limit your loss to 20%.

Key market patterns for swing trading

Swing traders build their methods using trading tools like Bollinger Bands, Fibonacci Retracement, and moving oscillators to design their investment strategy. Traders also keep an eye on emerging market patterns like

– Pattern of the head and shoulders

– Flag creation

– Pattern for the cup and handle

– Triangle pattern

– Crossover of moving averages

Some of the most popular swing trading brokers in India include the likes of Angel Broking, Motilal Oswal, IIFL,  Zerodha, Upstox and Sharekhan.