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.
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.
Swing trading
Day trading
Frequency
Multiple trades per week
Multiple trades per day
Costs
Lower
Higher
Return period
Longer
Shorter
Time commitment
Periodic
Constant attention
Trading platform needs
Can use a brokerage account
Need up-to-the-minute trading software
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.
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
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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
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.
Yes, swing trading with stocks is very common.
The 1% rule means you risk no more than 1% of your trading capital on a single trade to limit losses and protect your account.
Beginners can try swing trading, but they should first learn technical analysis, practice with a demo account, and start small to manage risk effectively.
Veronica Ott was a writer at Finder. She's written for numerous finance and business websites including Loans Canada, Borrowell and Fresh Start Finance. She previously worked as a professional chartered accountant in the private equity and advertising industries.
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