Last Updated on 11 September, 2023 by Samuelsson
Swing trading has become a popular way to participate in the stock market since the advent of the internet and the proliferation of online discount brokers. Owing to its popularity, you may be wondering whether swing trading is an investment vehicle.
Strictly speaking, swing trading is not an investment. Rather, it can be considered an active business because you are actively involved in the management of the trading process, unlike a passive investment where you are not actively partaking in the day-to-day management decisions.
In this post, we will discuss what swing trading is about, why it is a part-time business and not an investment, and how you can swing trade.
What swing trading means
Swing trading simply means a form of trading that tries to profit from medium-term price moves. Those moves are the normal price swings on the daily timeframe, which often last from a few days to a couple of weeks. The idea of swing trading is to capture most of each price swing by entering a trade at the beginning of a swing and getting out before an opposite swing starts.
Most swing traders make use of technical analysis strategies to know when a new swing is starting and when it is about to end, and they do the analysis on the daily timeframe and occasionally, on the 4-hour timeframe. Trades are held for a few days or weeks — until the price swing ends. When a swing ends, another starts in the opposite direction. The trader may decide to switch sides and trade the opposite swing as well, depending on his trading plan.
Why swing trading is not an investment
Unlike in long-term investing where you identify a stock with huge growth potentials or an undervalued stock and decide to invest your money, leaving it for several months, years, or even decades, swing trading is an active process. It requires you to actively participate in the market, analyzing different stocks, creating a watch list of stocks with potential trade setups, frequently checking the watch list to know the stocks that have completed the trade setups, placing trades at the right time, and monitoring the open trades until they are closed.
All those require day to day activities and not just having your money work for you, which is what an investment is about. So, it is safe to say that swing trading is not an investment in the strict sense of it. However, since you can receive dividends if your trade is open during the cum-dividend trading period and stays beyond the ex-dividend date, some may consider swing trading a very short-term investment. But swing trading is not about buying a stock just for the sake of dividends.
Swing trading as a part-time business
Stock trading, generally, is seen as an active business, so swing trading should be seen in that light too. A business, here, means an income-yielding venture in which you are involved in how it is run on a day-to-day basis. Since you have to create a plan for their trading, engage in the trading process yourself, and conduct an evaluation of your trading activities from time to time, trading is obviously a business.
For day traders, it is a full-time business that takes the whole of each trading day, but for swing traders, it is something they can devote a little amount of their time each day. Thus, swing trading can be seen as a part-time business, and when done properly, it can be a very profitable side business.
How to start swing trading
It is easy to start swing trading if you are ready to follow the easy way. Of course, you can follow the hard way by trying to learn how to trade on your own. You can pick up some trading books and listen to some analysts on the CNBC and Bloomberg. But that would take a lot of your time and, you may end up not learning the right things.
An easier way is to enroll in a swing trading course where you will be taught the different swing trading strategies that work. A good swing trading course will teach you how to analyze the market to know when to enter and exit a trade, and you will get to learn the right mentality to have as a swing trader.
If you don’t even want to learn the trading process, you can subscribe to a good swing trading signal, which tells you the stocks to buy, when to buy, and when to sell.
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Final words
Swing trading is not necessarily an investment per se. It should be considered as a part-time business because the trader is actively involved in the day-to-day activities of managing the trading process.
Here you can find our archive with all our swing trading articles.