If you have been reading a lot about trading and the styles of trading, you have probably stumbled upon the swing trading strategy. You might have even read a few short lines about it.
Swing trading is a very popular trading strategy for traders who don’t mind holding their positions for several days at a time. This trading style is quite suitable for those who don’t have much time to spare to monitor the performance of their trades, though they spend maybe a couple of hours for that.
What does swing trading do?
Swing trading tries to spot “swings” within a medium-term trend. The swing trader will only enter when there seems to be a high chance of winning the trade. In general, if there’s an uptrend, your goal is to go long or buy at “swing lows.” Conversely, you want to go short or sell at “swing high” to use the countertrend to your advantage.
How to Swing Trade
You have to remember that your trades will last more than a day. This means that you will have to decide on how much stop loss you are going to place. Usually, swing traders use large stop loss orders in order to weather volatility.
A heads up: you will most like see your trades go against you during the holding time. There can—and there will—be many price fluctuations in the shorter time frames. It goes without saying that you should remain calm during these times. Stick to your analysis and try to have some confidence in your strategy.
Meanwhile, trades usually have larger targets. This means that spreads will not have much of an impact on your overall profits. In other words, you can trade pairs will larger spreads and lower liquidity is quite acceptable.
Top Qualities of a Swing Trader
If you want to be a swing trader, you must have the following qualities.
First, you should have the appetite to hold trades for several days, not being antsy to close it when sudden volatility hits.
Second, you need to be willing to take fewer trades. Such trades should be well-planned and carefully picked, and they should sport good setups.
Third, you should know how to place good and large stop loss orders. This is for you to survive the volatility that comes along with holding trades for more than a day.
Lastly, you should have tremendous amounts of patience. You got to keep a clear head if you want to come out of the trade alive, or you will probably exit the trade without ever gaining anything and in fact losing.
NOT the Qualities of a Swing Trader
On the other hand, you might want to consider another strategy and stay clear of swing trading if you have the following qualities.
First, you’re an action junkie, meaning you like fast-paced and thrilling trading. If you’re like this, swing trading will not satisfy your need for action.
Second, you easily get jittery when volatility hits.
Lastly, you’re not a swing trader if you easily run out of patience and you want to know right off the bat if you win or lose a trade.