What is Swing Trading?

Swing trading is a medium-term trading strategy used to capture profit from asset price swings. After analyzing market trends, swing traders will buy assets and hold their positions over a few days to several weeks before reselling them for a profit. 

Traders who adopt swing trading strategies are called swing traders. They are also fundamentals traders who hold their positions for more than one day. The trading strategies adopted by most of fundamental traders are also swing trading strategies. The theoretical basis of swing trading is that traders believe it usually takes a few days or even several weeks to translate market changes into price moves from which they can earn profits.


Features of Swing Trading

1.     Swing trading is a medium-term trading strategy and its trading period is somewhere between intraday trading (short-term) and buy-and-hold trading (long-term)

2.     When using swing trading, positions are intermediate-term and usually held overnight

3.     Higher profitability. Swing trading is based on the price moves over a period. The stronger the fluctuations are, the bigger the profit range will be. Compared with the intraday trading, swing trading carries more profit-making opportunities

4.     Closely tied to technical analysis. Technical analysis is used by swing traders to look for trading opportunities


Swing Trading vs. Intraday Trading

DifferenceSwing TradingIntraday Trading
AttributeMedium-term tradingShort-term trading
Trading PeriodA few days to several weeksA few minutes to several hours
Gains per tradeRelatively high profitabilityRelatively low profitability


Pros of Swing Trading

1.     High trading flexibility

Swing traders make profit from price swings but not from holding their positions for a long time period. Price swings and varied trading methods deliver a high amount of flexibility while trading. 

2.     More trading opportunities

Swing trading is based on price moves, so traders can enter and exit the market at their own will, which means they will enjoy more trading opportunities. Once they confirm the signal for a market direction based on indicators, they will open a position. Swing trading is an ideal trading strategy for trading highly volatile assets, as this makes more profit-making opportunities.   

3.     Strong capacity to cut loss

Compared with the long-term holding strategies, swing trading has a much shorter trading period and enables users to leverage stop-limit orders to cut their losses while trading. With many opportunities to earn quick returns, swing trading can be used by traders to make up their short-term loss by executing additional rapid trades.


Cons of Swing Trading

1.     Subject to overnight and other risks during non-trading hours

As the holding time of swing trades is more than one day, or even several weeks, they are subject to overnight, weekend and other time related risks during the non-trading hours in equities, forex and other traditional markets. Abrupt market reversals can result in substantial losses. Even though the crypto market is open 24/7, there are still market risks during non-trading hours. Moreover, trading sessions vary depending on time zones. 

2.     Market volatility risks

Swing trading is also subject to the negative impacts of market volatility. For instance, many price moves are actually tied to some general market trends. As swing traders pay more attention to short-term price moves, they may miss out on opportunities based on long-term trends.


Commonly Used Technical Indicators in Swing Trading

Swing traders utilize technical analysis often. They use technical analysis tools to predict and track the potential fluctuations of their target assets without worrying about their long-term value. 

1.     Moving Average (MA)

Moving averages help traders identify opportunities in market fluctuations, as well as market reversal signals. They can also assist traders in grasping the overall intensity of the current market trends, especially long-term moving averages, including 50-day, 100-day, and 200-day moving averages. When a short-term moving average crosses with a long-term moving average to form a golden cross or a death cross, traders can spot a signal for a market reversal. 

2.     Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a tool used to identify swing trading opportunities based on the bullish or bearish setups, especially for the traders who wish to seek short-term trading opportunities. For instance, if the RSI is higher than 70, it indicates that the asset may be overbought which leads to a drop in price. If the RSI is lower than 30, it shows that the asset may be oversold which will lead to a rise in price. 

3.     Resistance level and support level

The resistance and support levels can help traders identify trading opportunities by observing the signal of retracement or breakout. If the price of a target asset is near the resistance level, it may pull back in price; if it breaks out the resistance level, it may continue to rise.