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Is Swing Trading Bad?

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Last Updated on 11 September, 2023 by Samuelsson

Is Swing Trading Bad? If you are interested in the stock market and follow financial pundits, you must have heard a lot of things about swing trading — some good and some bad. But is swing trading bad?

No, swing trading is not bad; it is actually a great way to trade the stock market. While some people with long-term investing orientation may not like this style of trading for reasons peculiar to them, swing trading presents a great way to benefit from the natural swinging pattern of price movements if you know how to read the market.

In this post, we will explore the reasons why some people think that swing trading is bad, and subsequently, we will discuss the benefits of swing trading. But first, let’s understand what swing trading is about.

What you should know about swing trading?

Swing trading is a style of trading that sets out to profit from the medium-term price moves rather than the long-term trend. As you know, the price moves in waves, with up and down swings, irrespective of the overall direction of the trend. The trend may be upwards, downwards, or sideways. When the upswings are bigger than the downswings, the trend is upwards, but when the downswings are bigger than the upswings, the trend is downwards. For sideways movements, the upswings and downswings are about the same size.

In swing trading, we are interested in the up and down price swings on the daily timeframe, and those swings normally tend to last from a few days to a few weeks, and quite rarely, up to several weeks. The essence of swing trading is to milk the individual price swings as they come while avoiding pullbacks (or the opposite swing in the case of a ranging market), which erode profits. It is possible to trade both the up and down price swings, but for stocks, beginners should trade only the upswings because the price of a stock has limited downward potential and unlimited upward potential.

Swing trading is mostly based on technical analysis, with little or no input from fundamental analysis. Most swing traders try to use chart analysis to predict where one swing ends and a new one begins. With good strategies and proper execution, they get some calls right and some wrong, but over a series of trades, they win enough to stay profitable.

Why some people think that swing trading is bad

To some people who have long-term investing orientation, swing trading is bad and should never be undertaken by any serious market player. They have their reasons for that, and we are going to discuss some of them in this section.

Analysis and market timing: Some investors believe that it is not possible to consistently time the market. They believe that price swings are random movements and that there is no way of knowing where one begins and when it ends. To them, technical analysis is too subjective to hold any merit, let alone being reliable enough to predict price movements with a reasonable degree of accuracy.
Overnight gaps: Compared to day trading, one major risk associated with swing trading is that the trades are left overnight and over the weekends. So, they are at a risk of overnight and weekend gaps, which can render the stop loss useless and make you lose more than you planned.
Leverage: Although leverage is not mandatory, most swing traders make use of leverage to maximize their potential profits. But the problem is that it also magnifies potential losses. While they try to limit their losses with the use of stop loss, an overnight gap can do great damage to their accounts.
Risk management: Critics of swing trading tend to think that the risk is too much in swing trading. However, by managing your trade size and using a stop loss, you can reduce your risk exposure.
Missing the opportunity to gain more profit: This is a valid concern for high-flying stocks like Amazon and Tesla. Holding those stocks long term is obviously better than attempting to trade the swings, but those are only a few among thousands of stocks that often stagnate.

The benefits of swing trading

Despite the concerns, there are many benefits of swing trading when compared with either day trading or long-term investing, and these are some of them:

Less time commitment: Compared to day trading, swing trading requires less time commitment. In swing trading, both the technical analysis before entering a trade and the trade management afterward are done on the daily timeframe, so you don’t get watch your screen all day long.

Part-time engagement: You can do swing trading part-time while keeping your 9-5 job. You can do your analysis at the end of the trading day or the beginning of the next to place your trades or manage existing positions.

Good returns: If you have a good strategy and proper risk management, you can make reasonably good returns from swing trading — you can consistently beat the market.

Money not tied to a bad stock for long: Unlike in long-term trading, you don’t get to have your capital tied down in a bad stock for a long time.

Learning to swing-trade the right way

So, how do you learn to swing-trade the right way? There are a few things you can do.

Study the market yourself: You can study the market on your own. Pick some books about stock trading and read to understand how the market works. Do your research and develop your unique trading strategy. Back-test and front-test it to be sure that it can make money.

Enroll in a trading course: The easier way to learn swing trading is by enrolling in a trading course like the Robust Trader Swing Trading Course. It will teach you proven strategies with back-tested results. Alternatively, you can subscribe to their swing trading signals if you don’t want to learn the process yourself.