Basics and Rules of Swing Trading

Being a trader, you always wish to find and use strategies that work and make you earn some additional income. Not all strategies work, especially for novice traders. Below we shall see an overview of swing trading and why you should try it as an ambitious in the stock market.

What Is Swing Trading?

Swing trading is a speculative strategy in which investors purchase and hold assets for some days or weeks in order to make short- or medium-term profits from anticipated price movements.

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This strategy provides a great way to understand how the trading market moves and that is why swing traders look for trading opportunities primarily through technical analysis. They also can use fundamental analysis in addition to price trends and patterns to make trading decisions.

Understanding Swing Trading

When investors approach the stock market, they often have different goals that they wish to achieve. Some wish to achieve them within a short time, while others wish to gain profits after a long while, and many wish to achieve profits in both timelines.

Trading has different strategies that investors can use to achieve their goals, and the most common, especially to new and novice traders, is swing trading.

Swing trading typically entails maintaining a long or short position for more than one trading session, but typically not for more than a few weeks or a few months – this is just a general time frame. Even though some trades may last for several months or longer, the trader may still classify them as swing trades. Swing trades can also happen during a trading session, but this is a rare result caused by incredibly volatile circumstances.

Capturing a part of any prospective price movement, or “swing,” in the market is the aim of the swing trader. Due to the trader’s emphasis on short-term trends and desire to minimise losses, individual gains might be smaller. But modest gains made repeatedly over time can add up to a captivating annual return.

Pros and Cons of Swing Trading

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Swing trading have its benefits and downsides. Let us see some of them.

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1. It requires less time

When using a swing trading strategy, you will be a bit busy though not as compared to day trading. Swing trading may only require you to conduct technical analysis on the daily timeframe apart from the 4-hour time frame that allows you to pick a suitable entry price as the trading setup is forming.

If you are using the intraday trading strategy, you will need to spend time watching the 15 or 30-minute charts as per your timeframe analysing those data.

2. Swing trading has no pressure

Due to the fact that swing trading does not take all your time on the computer or on your mobile trading app, it means that you can spend time doing your other daytime job. So, you will not put all your mind and effort into the income that comes only from trade, and you will be safe psychologically.

3. If done well, it can give good returns

Trading needs good strategies. If you combine good strategies and good risk management skills, you can really profit from swing trading.

Approximately, you can gain between 10 and 50% per annum using swing trading, which is better compared to the wider market per annum returns. Do not forget that you must be consistent and with great mental skills to achieve this.

4. It allows you to manage your funds with great flexibility

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Unlike long-term, swing trading does not allow you to have your capital locked up in a bad stock for an extended period. If a trade does not work out, you take a small loss and transfer the funds to another stock with a trade setup.


1. You need lots of time to learn the strategy

Even though swing trading favours newcomers in the stock market, the trader still needs to invest time learning about technical analysis concepts that will involve reading technical charts and understanding technical indicators. Unless one invests time in these concepts and implements them correctly, it may be hard to earn from swing trading.

2. Trading costs can increase over time

Even though swing trading is less expensive than day trading; it can still end up costing a lot of money, especially when compared to long-term investing, where one trade can last for many months.

3. Market timing is not an easy task

Timing the stock market is quite difficult, even for experienced traders. The new traders may need to understand this before investing funds and seek to learn comprehensively and daily about how to go about it.

4. Exposure to price gaps

Swing trading involves leaving trades open through the night and occasionally into the weekend. The trades are, therefore, vulnerable to price gaps over the course of the night or the weekend, which can occur when there are earnings reports or other market news during the after-hours market or over the weekend. 

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These gaps are problematic because they invalidate a trader’s stop loss. Trading smaller trade sizes without leverage are the only way to reduce the risks related to price gaps.

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Day Trading vs. Swing Trading

The table below summarises how day trading and swing trading differ from each other.

Day tradingSwing trading
Trading positions are only open for a few hours of the day or before the closure of the Stocks market.Most of the time it involves holding a trade for several days to weeks.
No great risk of unpredictability because trades close in a single day.There is unpredictability due to the gaps up, or gaps down that might happen overnight against the trading position.
Day traders have the advantage of utilising larger trading positions of even up to 25%-day trading margin.Swing traders may be forced to trade in small positions due to the overnight risk.
Requires more timeLesser time to trade

Swing Trading Tactics

Multi-day chart patterns are some of the tactics that any swing trader needs to look at to conduct a successful trade. The most common patterns used include

  1. Moving average crossovers;
  2. Head and shoulders patterns;
  3. Cup and handle patterns;
  4. Triangles and flags.

In the end, each swing trader develops a strategy and plan that gives them a competitive advantage in many trades. In order to do this, you must search for trade setups that frequently result in predictable changes in the asset’s price. It’s not simple, and no setup or strategy is guaranteed to succeed.

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It may not be necessary to win every time when the risk/reward ratio is favourable. Fewer wins are required for a trading strategy to generate an overall profit over a large number of trades, the more favourable the risk/reward ratio is.

Real-World Example of Swing Trade in Apple

A real-world example of a respectable swing trade setup happened in October 2019, with Apple Inc. (NASDAQ: AAPL). It began with a breakout and ended with the price reaching a new record high above $232.

The cost then increased sharply, reaching more than $320 in January 2020 (a span of three months). This was a staggering change of almost $100 per share. This kind of move is uncommon for mega-caps, and it was quite challenging to predict.

What Are the “Swings” in Swing Trading?

Swing trading is a type of trading practised based on the idea that market prices rarely move in a straight line and that traders can profit from small oscillations. Swing traders place special emphasis on the moments when a market shifts direction, entering and exiting trades at these “swings” in the market. Swing trading entails trading the shorter trends’ limbs.

How Does Swing Trading Differ From Day Trading?

The duration of the position is what distinguishes day trading from swing trading. The day trading style entails closing positions before the end of each trading day, as the name implies. In order to profit from small market movements, day traders will buy and sell a variety of assets during the trading day.

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Swing traders, however, are not always subject to this limitation because a swing trade’s duration is based on the trend’s timeframe, which is subject to wide variation. Therefore, the trade duration could range from less than 30 minutes to more than a day.

What Are Some Indicators or Tools Used by Swing Traders?

The indicators that Swing traders use include:

  • Momentum indicators;
  • Moving averages in conjunction with candlestick patterns;
  • Price range tools.

Technical patterns include:

  • Head-and-shoulders;
  • Cup-and-handle.

Which Types of Securities Are Best-Suited for Swing Trading?

Finding stocks that are relatively calm; that is, don’t exhibit extreme price swings, or volatility is helpful when choosing a stock to swing trade. The best stocks are those that are slightly trending up or down, with steady price action, but little to no volatility.

Large-cap stocks fall in this category, and you can more often find them traded on major stock exchanges.


The major rules for swing trading are identifying the major price low (swing low) and the major price high (swing high), then looking at the profitable time to enter a trade. Even though this trading style is recommended for novice traders or those new in the market, do not try using it blindly. It is important to also learn the basics for using this strategy before trying it out to avoid loss of funds.

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