Swing trading describes any trading strategy that attempts to capture short to medium-term price fluctuations in the stock market. This means opening and managing a position from a few days to a few weeks.
Swing trading involves using technical analysis as the basis for opening and closing trades, but this does not mean you should exclude economic statistics and news events from your strategy.
Swing trading has higher risks from overnight and weekend events. The price could gap and open the following day at a significantly different price from what it was during the previous session. This must be carefully taken into consideration, especially when trading before news releases and other market-moving events.
- Two Approaches: Setting Stop Loss and Technical Analysis
- How to Swing Trade Stocks
- How to Find Stocks to Swing Trade
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Explanations and definitions of terms.
Two Approaches: Setting Stop Loss and Technical Analysis
Some swing traders use a rigid Take Profit system where they expect a certain risk-to-reward ratio from each trade. The key measurement in this money management system is your Stop Loss. Another approach to taking profits is more fluid, based on a technical indicator's behavior or price action movements.
How to Swing Trade Stocks
The first step to take when swing trading is doing a broad top down analysis of the market. The timeframe we give is a general guideline. You are looking for stocks with a market structure with a high probability of causing a reversal or any other easily recognizable pattern in the price action.
- Set your graph to the one day (daily) timeframe.
- Look for stocks that stand out due to an increase in volatility or an upcoming price pattern (market structure).
Swing trading aims to capture a segment of the potential market price move. Not all of it, just some of it. Just as there are many strategies, there are many reasons you should open the trade.
One reason for opening a trade can be a certain setup on a volatile stock with lots of movement. Other trading strategies target moderate stocks with strong levels that the price action repeatedly touches.
Successful swing trading involves continuously capturing chunks of price movement and moving on to the next opportunity. We recommend using oscillators to monitor price reversals and impulses when looking for entry points. You can find more to learn how to swing trade stocks on the Olymp Trade Official Blog.
How to Find Stocks to Swing Trade
By analyzing the chart of any equity, you can determine if the stock is “in play”, or if it is within a period of “consolidation.” The term “in play” means that there is something that is happening to the company, within the company or on the graph. When looking down your list of stocks, priority is given to stocks that are easily identifiable as “in play” on the graph.
- Look through the list of stocks on the platform. Add stocks that appear to be “in play” to a shortlist.
- Go through the shortlist, picking out stocks that have already started to react to a market level or news event.
- Enter the short or long position based on the outlook of your trading strategy.
- When you receive a trading signal from your strategies, you should verify that the trade is favorable by looking at the fundamentals.
The key measurement of the money management for this strategy is your Stop Loss. Depending on how far away your Stop Loss is, this will be the reward quantity we expect, preferably 3x bigger.
For example, you see a stock growing, and the next level of support is $2.00 away. You think the price will continue to rise, so you enter a Buy trade. Immediately after you open the trade, you set the Stop Loss to $2.00 below and the Take Profit to $6.00 above the opening price. Your risk/reward ratio is 1/3. You can use a smaller risk-to-reward ratio to increase the expectancy of each trade, but remember that this also means you need to make sure you have more winning trades to have similar results.
A stock may be favorable for a swing trade if:
- It has increased volatility.
- A price action pattern can easily be seen on the graph.
- It goes through a rapid directional change in value.
Swing trading is any strategy that attempts to capture gains by holding a stock for a short time. You're basically waiting to let the trend develop, and the price action plays out as you sit in the trade. It relies heavily on technical analysis, depends on the market conditions, and the first key step is picking the right assets.Go to Platform
Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
Take Profit is a postponed order that fixes your income on a trade at a specified level.
The risk/reward ratio marks the prospective reward an investor can earn for every dollar they risk on an investment. Consider the following example: an investment with a risk-reward ratio of 1:2 suggests that an investor is willing to risk $1 for the prospect of earning $2.
Stop Loss is a technical tool designed to help you minimize your risks on your trades. It is a postponed order that limits your losses on a trade to a specified level.
A span of time that defines what period each price increment should correspond to on the chart.