Swing Trading Explained

Swing trading captures price swings over days to weeks. It offers more flexibility than day trading while being more active than buy-and-hold investing. [DEFINITION] Swing Trading: A trading style that holds positions for several days to several weeks, aiming to profit from expected price moves or "swings." ### Swing Trading vs. Other Styles | Aspect | Day Trading | Swing Trading | Investing | |--------|-------------|---------------|-----------| | Holding Period | Hours | Days to weeks | Months to years | | Analysis | Technical | Technical + Fundamental | Fundamental | | Time Commitment | Full-time | Part-time possible | Minimal | | Capital Requirement | High ($25K PDT) | Moderate | Any | [TIP] Swing trading is ideal for people with jobs. You can analyze charts in the evening and place orders before or after work. ### Swing Trading Advantages - **Overnight gaps:** Can profit from positive news after hours - **Less stressful:** No need to watch screens all day - **No PDT rule:** Hold overnight, so not classified as day trading - **Compound moves:** Capture larger moves than day trading ### Common Swing Trading Setups **Pullback to Support:** 1. Identify stock in uptrend 2. Wait for pullback to rising support (MA, trendline) 3. Enter when pullback reverses 4. Target: New highs **Breakout:** 1. Identify consolidation pattern 2. Wait for breakout on volume 3. Enter on breakout or retest 4. Target: Measured move [EXAMPLE] Apple in uptrend, pulls back to 50-day MA at $170 after hitting $185. Forms bullish engulfing candle at MA. Entry: $172, Stop: $165 (below MA), Target: $190 (new highs). Risk: $7, Reward: $18, RRR: 2.6:1. ### Risk Management for Swing Trading [KEY] The typical swing trade should risk 1-2% of capital with a minimum 2:1 reward-to-risk ratio. **Position sizing example:** - Account: $50,000 - Risk per trade: 2% = $1,000 - Entry: $100, Stop: $95 (risk $5/share) - Position size: $1,000 ÷ $5 = 200 shares ### Managing Swing Trades **Entry:** - Use limit orders for better fills - Consider scaling in (partial position first) **During trade:** - Trail stop as price moves favorably - Don't watch constantly (daily review is enough) - Ignore intraday noise **Exit:** - Hit target: Take profits - Hit stop: Accept loss, move on - Time stop: Exit stagnant trades after 2-3 weeks [WARNING] Swing trades carry overnight risk. A stock can gap significantly against you on news. Accept this risk or don't swing trade. [EXERCISE] You have a $100,000 account and want to risk 1.5% per trade. A stock trades at $80 with your stop at $74. How many shares can you buy? What's your total position value? |ANSWER| Risk allowed = $100,000 × 1.5% = $1,500. Per share risk = $80 - $74 = $6. Shares = $1,500 ÷ $6 = 250 shares. Position value = 250 × $80 = $20,000. [SCENARIO] You enter a swing trade expecting a 2-week move. After 3 days, the stock hasn't moved—it's just chopping around near your entry. Your analysis was that a breakout was imminent, but it hasn't happened. Should you exit? Not necessarily yet, but set a time stop. If the expected catalyst or move doesn't occur within your timeframe (2 weeks), exit regardless. Your capital is a resource—deploy it where it's working.