Last Updated on 3 November, 2022 by Samuelsson
For most beginner swing traders, swing trading is all about knowing the right time to enter a trade. They don’t bother about how to manage their trades or the right time to exit their positions. But experienced traders know that trade management and exiting at the right time is the hallmark of good trading. so, how long should you hold a swing trade?
You should hold a swing trade until your preplanned exit conditions are met. Generally, price swings on the daily timeframe last from a few days to a few weeks. This means that you should have a trading plan that determines how you want to exit your trades, which could be based on time, the appearance of the opposite setup, a stop loss, and profit target, or a trailing stop.
Obviously, you would like to know more about the listed examples. We will treat them one after the other in this post, but first, let’s find out what a swing trade means.
What does a swing trade mean?
A swing trade is a trade that tries to capture a single price move rather than ride the trend with its multiple up and downswings. The aim is to ride a price swing and get out of the market before a pullback or the opposite swing starts. Hence, it is important to know when a price swing is about to end.
Swing trading is often done on a daily timeframe, so the price swings that matter here are those on the daily timeframe. Usually, those swings last from a few days to a few weeks. Swing traders often try to enter at the beginning of a swing and get out in time before the swing turns.
As you know, the price can be in an uptrend, downtrend, or move sideways. The general approach is to trade the swings in the direction of the trend and avoid the pullbacks in opposite direction. In the forex market, you can also trade the up and down swings in a ranging market, but in the stock market, it is advisable to trade only the upswings because the price has a limited downward potential but unlimited upward potential.
How long is a swing trade?
This is a tricky question. Generally, price swings on the daily timeframe last from a few days to a few weeks, so you are expected to hold your swing trades a little less than that time range. However, the duration of each trade depends on the prevailing market condition and your plan for the trade.
If the price swing you are trading shows signs of reversal by the third day, there is no point holding the trade beyond that duration. What matters is that you have a strategy for determining when it is time to exit the trade, or you put in place a mechanism to get out of the trade with the best possible result.
In other words, your trading plan determines everything. You simply execute the exit strategies you have already stipulated in your trading plan.
Best exit strategy for swing trading
Generally, there are a few simple ways to determine when to close your trade, and these are some of them:
With this kind of exit technique, you exit your trade when you see the opposite signal to the one that made you enter the trade. In other words, there is a setup in the opposite direction, which shows that the price may be about to start a new swing in the other direction. In a trending market, this could be a pullback which trend followers may decide to wait out, but for a swing trade, you have to get out so as not to give back most of your profits.
Let’s take an example. Assuming your trading strategy is such that you went long when an oscillator (RSI, stochastic, or CCI) shows a bullish divergence, it is only proper to close your trade when a bearish divergence appears.
When you are using this method, you simply set a time when you close your trade no matter what happens and provided the trade is still in play at that time — that is, your other exit method has not kicked you out of the market. So, this method can be combined with any of the other methods.
For example, you may decide to exit your swing trade using the three-day rule, whereby you close your trade at the end of the third day from the day you entered the trade, whether you are in profit or loss.
Related reading: How Long You Should Hold a Trade and Position in Trading?
The use of stop loss and profit target
This is the most common exit method, especially among beginner traders. With this method, you determine beforehand where you want to get out when you are losing (stop loss) and where to close your trade and pocket your profit (profit target). The ideal thing is that when you’re long, you set your stop loss beyond a support level and the profit target before a resistance level.
For a beginner, it is advisable to practice set and forget, where you set your stop loss and profit target and leave. Your trade will either be closed at the stop loss with a loss or at the profit target with a profit.
The use of a trailing stop loss
Unlike the set and forget method, this method trails your profit as the price moves in your favor. It can be manual trailing or automated. While there are many trailing strategies for trend-following, for a swing trade, the most viable option is to trail just below the preceding candlestick.
How to decide what exit method to use
Now, you may be wondering which one is the best exit method to use. Well, there is no best method per se. You just have to test the various methods to see the one that works best for your entry strategy. This you can do from backtesting either manually or with a strategy tester. Alternatively, you can front-test them by implementing them in demo trading to see which works best.
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How long you hold your swing trade depends on your trade plan and your preferred exit method. You determine the method that suits your trading strategy through backtesting or demo trading.
Here you can find our archive with all our swing trading articles.