What is swing trading?

Swing trading is an active type of short-term investing. Swing traders use technical analysis to anticipate stock movement and trade based on these predictions with the ultimate goal of realizing capital gains. Unlike day trading, a swing investor purchases stocks on the market and holds them for a few days or weeks.

What is swing trading?

Swing trading is an active, short-term form of investing. It is the opposite of passive investing, which involves purchasing and holding assets for long-term profit. Swing trading stocks requires a risk-reward analysis to determine point of entry, stop loss and exit points that will result in capital gains.

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Interactive Brokers

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Swing trading vs day trading

Swing trading and day trading share a lot of similarities. For example, they both involve a strategy and technical analysis, and both are active investing methods. However, there are several differences to consider too. The main difference is the frequency of trades. Let’s explore swing trading vs day trading in the table below.

Keep in mind that many active investors participate in both day trading and swing trading simultaneously. By using both tactics, you may be able to diversify your profits further. However, neither strategy is for beginners.

Pros and cons of swing trading

Pros

• Less of a time commitment than day trading.
• You can use a regular brokerage account.
• You can earn an income from short-term gains if you’re skilled at swing trading.
• Active investment strategy that can help diversify your portfolio when combined with passive strategies.

Cons

• Swing traders can miss out on long-term gains by focusing solely on short-term gains.
  
• More strategy is required than passive investing. Swing trading requires a solid strategy in order to determine what and when to buy and sell.
• Weekend and overnight market risk.

Swing trading strategies

In general, active trading requires some kind of strategy. Your strategy may evolve over time as you become more skilled, but it’s important to start somewhere. Swing trading usually involves technical analysis to employ your strategy. Below are commonly used swing trading strategies to look into further.

• Using support and resistance triggers
• Assessing moving averages to identify bullish or bearish crossover points
• Contrarian investing (or “fading”)
• Using daily and 60 minute charts

Start swing trading with these online brokers

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Name	Product	Finder Rating	Available Asset Types	Stock Trading Fee	Account Fee	Signup Offer	Table description
National Bank Direct Brokerage National Bank Direct Brokerage		Finder Rating: ★★★★★ 4.2 / 5	Stocks, Bonds, Options, Mutual Funds, GICs	$0	$0 if conditions met, or $100	Get $0 commission on all transactions with promo code: finder		Go to site View details	Compare	loading Fetching your data...
CIBC Investor's Edge CIBC Investor's Edge		Finder Rating: ★★★★★ 3.8 / 5	Stocks, Bonds, Options, Mutual Funds, ETFs	$4.95–$6.95	$0 if conditions met, or $100	N/A	An easy-to-use platform with access to a variety of tools to help you trade with confidence.	Go to site View details	Compare	loading Fetching your data...
Interactive Brokers Interactive Brokers Finder Award		Finder Rating: ★★★★★ 4.3 / 5	Stocks, Bonds, Options, ETFs, Currencies, Futures	min $1.00, max 0.5%	$0	N/A	Winner for Best Overall Broker in the Finder Stock Trading Platform Awards.	Go to site View details	Compare	loading Fetching your data...
Questrade Questrade		Finder Rating: ★★★★★ 4.3 / 5	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, Precious Metals	$4.95 - $9.95	$0	Get $50 in free trades when you fund your account with a minimum of $1,000.	Opt for self-directed investing and save on fees or get a pre-built portfolio to take out some of the guesswork.	Go to site View details	Compare	loading Fetching your data...
Qtrade Direct Investing Qtrade Direct Investing		Finder Rating: ★★★★★ 3.7 / 5	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs	$6.95 - $8.75	$0 if conditions met, otherwise $25/quarter	Get up to $150 sign-up bonus. Use promo code BONUS150. Conditions apply. Ends June 30, 2023.	Low trading commissions and an easy-to-use platform with access to powerful tools and a wide selection of investment options.	Go to site View details	Compare	loading Fetching your data...

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Bottom line

Swing trading is an active form of investing that yields profits over a short period of time. If you’re ready to try swing trading, be sure to spend time gathering knowledge and developing a strategy. For those who don’t have the means to participate in swing trading, consider long-term investing instead.

Frequently asked questions

• Is swing trading in Canada legal?

  Yes, swing trading in Canada is completely legal. However, you must be compliant with tax regulations. Swing trading in Canada is usually considered business income because it requires active efforts to earn. This means you must track your gains and losses and report them on your tax return as business income.

• Can you do swing trading in Wealthsimple?

  Yes, swing trading in Wealthsimple is possible.

• What's the difference between swing trading vs scalping?

  Scalping is a trading method that involves profiting off small price changes and making quick profits off reselling. Swing trading is the process of purchasing stock, holding it for a period of a few days to a few weeks, and selling it for a profit. The main difference lies in the volume of stock. Scalping has a focus on high volume stock purchases and resales.

• Can you do swing trading with stocks?

  Yes, swing trading with stocks is very common.

• Can you do swing trading in a TFSA?

  It depends on how frequently you swing trade. Like day trading, swing trading is considered active trading and the gains it generates can therefore be considered business income. TFSAs are designed for personal use only, so if you’re somewhere in between a part-time and full-time trader, you could be taxed on your gains within your TFSA.