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Finding the middle way, a Swing Trader typically participates in the market for relatively short periods. While they may trade every day, they are not day traders and while they may have the patience to wait out profit objectives, they are not investors. A typical trading position is held for more than a single day, but rarely beyond three to four weeks.
The main objective of a swing trader is to profit from ‘swings’ in the price movement of an index, stock, ETF or otherwise. In most cases, the behavior is driven by the variations of technical analysis, or the study of price patterns over charts. However, while it may have emerged as an arm of trading using technicals; swing traders have increasingly begun to incorporate fundamental factors into their decision making – it could be the release of earnings or other such news which could possibly impact prices.
Swing Trading feeds of volatility. As broader market cycles have shortened, the short to intermediate trends too have altered – the average length of a trade is estimated at 5 to 10 days. Given the trading horizon, the discipline associated with the same is immense – as one swing trader puts it, ‘targeting 5-10% gains in a position with stop losses set at 2-3% will ensure a sound 3-to-1 profit-to-loss ratio, a sound portfolio management rule for success. It’s a critical component of the whole system since an outsized loss can wipe away a lot of progress made with smaller gains.’
Setting out on the journey of swing trading should be made with a proper understanding around Technical Analysis. Subsequently, one should outline the following: What is the general market sentiment? Get an understanding into the primary trend — bullish or bearish; this may be done with a parallel broad level insight into fundamentals, economy, industry and/ or company, based on the asset traded. Subsequently, one may chalk out the list of possible trades – an ideal entry point to start off can be a fundamental catalyst as outlined earlier. After the entry, the subsequent monitoring and exit is generally based on technical indicators. As one equips oneself with the understanding of this way of trading, they may move onto the next level – trading a sector, working with multiple scrips.
Swing trading may be an ideal way to enter the market of trading – it blends fundamental and technical analysis and with the resources available around these subjects, it does not require a great deal of investment to set out. Markets currently present an ideal platform for one to test the field of swing trading – however, as is the case with the field of investing or trading, one must adhere to the discipline warranted with the same respecting both profit targets and more importantly stop-loss levels.
Did You know??
A Swing Trader typically participates in the market for relatively short period.
While they may trade every day, they are not day traders.
A typical trading position is held for more than a single day, but rarely beyond three to four weeks.