Swing Trading

Are you curious about swing trading? Swing traders ride the swings or oscillations that markets make as the stock or currency pair pivots from one price level to another. Swing trading is an extremely popular style of trading can you can apply to almost any market. The three most popular trading styles are day trading, swing trading and trend or buy and hold trading. Swing trading finds a middle ground between day and buy and hold trading and is the preferred style, no matter what you trade. Let's take a look at the other styles.

Day traders typically keep their trades confined to a single trading day, hence the name. This style of trading also encompasses scalping, which is very popular amongst some traders. While sclaping can offer extremely high rates of return, it does so with very high risk levels. Buy and hold traders take the extreme of trading and commonly hold trades for several weeks to months. The buy and hold strategy requires large amounts of capital to be effective.

Swing trading usually sees all trades opened and closed within a week, typically 1 to 4 days on average. Can you hold trades longer than this? Of course, but this is just a general rule of thumb. While swing trading can be applied to any market, some are more suitable than others. Swing traders benefit from having low risk with high rewards. This is the perfect balance for trading profitably.

Scalping and buy and hold trading styles are either extremely high risk or the returns on your investment are too low. If you want a high rate of return with the lowest levels of risk, swing trading is right for you. A trader can apply swing trading to any market regardless of where they may live in the world.

The ways in which a trader can trade markets is almost endless, no matter if you trade the stock markets or dabble in the growing FOREX market. Trading by its very nature is risky, it would be advised to take some time and find out which style of trading offers the best and safest return on your investment. Such a style that offers this is that of swing trading.

Two simple but powerful reasons make it clear why swing trading is second to none. The first is that swing trading doesn't require you to spend long days in front of the monitor watching charts waiting for the precise second to enter a trade. Many people become obsessed with trading and watch their charts day in and day out. All this usually results in is a tired trader losing money. There is no need to wait in front of your monitor all day just to place a trade. Swing trading doesn't require you to be watching charts all day and instead gives you more freedom. Trade setups don't need to be calculated down to the second.

There is no other style of trading that offers such low levels of risk as swing trading. Swing traders see the big picture. They usually observe markets from the higher timeframes and can see major trends much more clearly. Lower timeframes mean more noise which means more risk. These trends can be so short lived that they are almost impossible to trade. Swing traders can identify and trade in the direction of major trends which can last days, weeks, months or even years. By being able to trade in the direction of these major trends, returns on your investment are increased greatly while the chance of a loss is reduced significantly.

There are so many different styles of trading because traders are different, however, only swing trading offers the best of both worlds with high reward and low risk. Swing traders usually follow the smart money thanks to their preference of trading higher timeframes and only trading in the direction of the trend.

Swing trading stock markets promises to give you the best of the trading world but without the inherent high risk that other traders expose themselves to when they day or intra-day trade. It is possible to swing trade any market. However, there are two main tendencies you should look for in a stock if you plan to swing trade it.

First, swing trading requires a market that is known to trend more than going sideways. Some markets are seemingly randomless and offer no explanation as to why they move like they do. Swing trading requires the market you trade to show a high level of trendiness. A market that trends allows a swing trader to take pieces of the market as price swings up and down.

Secondly, whatever market you trade must not be too volatile. Volatile stocks, while offering the potential of a good income if you happen to be on the right side of the trade, make it difficult to swing trade. Swing trading takes time and as a result if a stock moves too fast or too abruptly in any one direction, it does not give you time to plan your entry and exit. The best kind of market to trade is one that is traded heavily.

Anyone can swing trade stock as long as they first make sure that it is one that tends to trend more than it moves sideways and that it does not move abruptly or erratically without explanation. Following this advice will put you on the path to becoming a profitable stock swing trader.

Swing trading would be made much easier if there was an indicator which could indicate where and when markets were approaching turning points. If you could know in advance when a market was ready to turn, this would greatly increase your chances as a trader of entering into a profitable trade. Luckily, such indicators already exist and when used properly they offer to give you an enormous edge while trading. These indicators are known as momentum indicators.

While many indicators are lagging, momentum indicators are leading. Put simply, they offer a glimpse at future price movement before it has occurred. Momentum indicators work on the basis of measuring a currency pair's level of momentum. As a currency pair begins to slow down and lose speed or momentum, momentum indicators help you to indentify this loss of momentum and warn that there may be a rally or retracement in the near future. By plotting a currency pair's momentum, a trader can know in advance when markets may be preparing to pull back.

One such momentum indicator is called RSI. The RSI (relative strength indicator) shows levels of a currency pair that are considered overbought or oversold. When the indicator is in these areas, a trader should be on the lookout for potential price retracement. When a market enters these areas of overbought or oversold, price typically adjusts to the new levels before it continues on. Being able to know that price may make adjustments in the near future, you can manage your trades before it is too late and essentially increase your trading edge.

If you want to know future price movement in advance, then take a look at momentum indicators, especially the RSI, today. The RSI is one of the oldest and most trusted trading indicators available. The RSI may just be the indicator you have been looking for to gain an edge over the market.

Having good money management is a core component of being successful at swing trading. If traders don't manage their trading capital properly, it is not uncommon for traders to increase the size of their trades too quickly. They do this with the hope of increasing their returns exponentially. However, traders who adopt this style of poor money management typically end up with nothing but losses and a zero balance in their trading account.

Good money management is based upon the following main points:

Detach yourself emotionally from the money.
Never trade more than you are comfortable with.
Never risk more than you stand to win.

First, you need to remove any kind of emotional attachment to the money you use for trading. Make sure that any money you plan to use for swing trading is money that you can live without. This isn't about failure or the worry of failure. It is about being smart. Trading with money that was set aside for other more important needs will only add stress to your trades. Do you really need to make trading any more difficult by worrying about how you will feed your family if you lose next week's paycheck? I hope not.

Second, start trading with small amount. Don't rush yourself. The market has been around long before you began trading and will still be around after you are gone. How small is small? Your first trades should be small enough that you feel comfortable with them. When trading, you want to focus on placing winning trades and not have your judgement clouded by the fear of losing money. To avoid having this happen, trade with an amount that you are comfortable with. You may even start trading pennies at the beginning, but that is ok. The important thing is that you are in control of yourself, your emotions and your trading.

Psychology plays an important role in trading and is very important for swing trading. Unfortunately, the area of psychology is something often overlooked as many traders are unaware of just how important it is. It could be said that the true key to being successful at swing trading lies in understanding the psychology of it.

Psychology here is all about how you manage yourself when trading. Trading induces a wide variety of emotions and reactions in people, more so when a trade they have just placed begins to make a large profit or loss. Many people lose control when it comes to trading and the thought of how much money they might possibly earn clouds their judgement.

If psychology is so important then why would so many people ignore it? Simply because people are scared that what they uncover about themselves will cause them more pain than good. This is the same kind of fear that ruins a good trade.

Success or failure at swing trading is entirely dependant on you. Are you mentally prepared to win or lose? Changing your thinking is crucial to being successful in trading.

Just what is a good swing trading strategy? Do good swing trading strategies have any features that make them better than others. Are there any key points that a strategy must address to truely be considered good? Swing trading is all about trend identification and entering based on rallies or pullbacks.

A key point to any swing trading strategy is allowing a trader to identify and trade with the trend. Why is the trend so important? It is widely believed and said that the smart money is the trend and by following it you stand to win more than you lose. The best trading strategies are ones that allow you to trade with the trend. This greatly increases your chances of making a profit and being successful in the long run.

Swing trading strategies make the most of rallies and pullbacks. Swing traders do not just enter haphazardly in the market, they usually wait for the market to retrace before they enter. If a swing trader wait for rallies and pullbacks, they can then get into the market at a better price. Why is this even important? Entering the market at a price that is in your favour means you stand to profit more.

A good swing trading strategy is one that is based around trend trading and entering the market at a time where you stand to get a good price. Swing traders manage to do this by waiting for price to retrace before it continues on with the main trend.