Last Updated on 15 January, 2025 by Trading System

Swing trading is a popular style of trading, and it is often the recommended trading style for beginner traders. As with any other type of trading, it offers many benefits but also has some demerits. But what are those pros and cons of this trading style?

The main benefits of swing trading include minimal time commitment, the flexibility of capital management, the ability to combine it with a full-time job, and many more. But there are demerits as well, which include overnight price gaps, missing exceptional stocks, and market timing.

In this post, we will explore the pros and cons of swing trading, but we have to first understand what swing trading is about.

What swing trading is about

Swing trading is a kind of trading style that sets out to profit from the medium-term price swings rather than the intraday price moves or the long-term trend. As you already know, the price moves in waves, with up and down swings, irrespective of the overall direction of the trend — upwards, downwards, or sideways. With swing trading, you aim to trade those up and down price swings but on the daily timeframe. The swings on the daily timeframe tend to last from a few days to a few weeks, and on some occasions, they can last up to several weeks.

The essence of swing trading is to profit from individual price swings, one swing at a time, rather than riding the long-term trend with multiple impulse and pullback swings. While it is possible to trade both the up and down price swings, especially in a ranging market, it is better to keep to only buying into the upswings because the price of a stock has limited downward potential but unlimited upward potential.

Swing traders mostly base their trading decisions on technical analysis, with little or no input from fundamental analysis. They often use chart analysis to predict where one swing might end and start the opposite swing, so they try to enter at the beginning of a new swing and hop out before the opposite swing begins.

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The pros of swing trading

There are certain advantages that swing trading offers. Here, we will try to discuss some of the most common ones:

1. The time commitment is not much

While swing trading will keep you busier than long-term investing, compared to day trading, swing trading requires less time commitment. In swing trading, you do your technical analysis on mostly the daily timeframe, except when a trading setup is forming and you want to step down to the 4-hourly timeframe to pick a better entry price.

So, unlike in day trading where you get to watch your price chart all the long to analyze those data that are printed every 15 minutes or 30 minutes, depending on your timeframe, you spend only a few minutes at the end of the trading day for your analysis.

2. You can trade part time

Owing to the nature of swing trading and the fact that it doesn’t take much time, you can combine it with a 9-5 job or any business that can generate constant cash flow for you.

The good thing is that the cash flow will help your trading psychology in no small measure. When you know that your basic needs are taken care of and you can pay your bills, you can trade with much calmness, without being in a haste to make money.

3. Swing trading can be very profitable

With a good strategy and proper risk management, swing trading can be very profitable without any stress. If you consistently implement your strategy, you can expect to make reasonably good returns from swing trading.

On average, you can make between 10-50% per annum from swing trading, which is better than the broad market return per annum. But you must have the mental skills to stay consistent.

4. It does not tie down your capital for long

With swing trading, you don’t get to have your capital tied down in a bad stock for a long time, unlike what happens in long-term trading. If a trade is not working fine, you take a small loss and move the funds to another stock that shows a trade setup.

In other words, swing trading gives you greater flexibility with managing your funds so that, at every point in time, your funds are working hard to make money for you.

The cons of swing trading

Despite the many benefits associated with swing trading, it has some demerits, which we will discuss now.

1. There is exposure to overnight and weekend price gaps

In swing trading, trades stay open overnight, and in some cases, over the weekend. So, they are exposed to overnight or weekend price gaps, which can happen when there are earnings reports or other market news during the after-hours market or over the weekend. The problem with these gaps is that they render a trader’s stop loss useless. The only way to minimize the risks associated with price gaps is to trade smaller trade sizes without leverage.

2. There is the possibility of missing exceptional stocks

Swing trading aims to profit from individual price swings. You try to enter at the beginning of a new swing and get out when a pullback starts. But in doing so, you may miss out on a great stock that would have made more money if held as a long-term investment. Examples of such stocks include Amazon, Apple, and Tesla.

3. Market timing is difficult

Even legendary swing traders know that timing the market swings is very difficult. If it is difficult for the experienced traders, how will it be for the beginner traders?

4. The trading cost can easily add up

While swing trading incurs less cost compared to day trading, the cost can easily add up to a huge amount, especially when compared to long-term investing where one trade can last for many months or years.

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Final words

Swing trading has many pros and cons. Some of the pros include minimal time commitment, the flexibility of capital management, and the ability to combine it with a full-time job, while the cons include overnight price gaps, missing exceptional stocks, and market timing.

Here you can find our archive with all our swing trading articles.

FAQ

Why is swing trading often recommended for beginner traders?

Swing trading is a trading style that aims to profit from medium-term price swings lasting from a few days to a few weeks. It’s often recommended for beginners due to its balanced approach and potential benefits.

Can swing trading be done part-time?

Yes, due to its limited time requirements, swing trading can be easily combined with a 9-5 job or other business activities, providing traders with additional cash flow and a more relaxed trading mindset.

What are the main benefits of swing trading?

The main benefits of swing trading include minimal time commitment, flexibility in capital management, the possibility to combine it with a full-time job, and the potential for profitability without the stress associated with other trading styles.

What are the potential drawbacks of swing trading?

Drawbacks of swing trading include exposure to overnight and weekend price gaps, the possibility of missing exceptional long-term stocks, the difficulty of timing market swings, and the accumulation of trading costs.

How does the cost of swing trading compare to other trading styles?

While swing trading incurs less cost compared to day trading, the costs can add up, especially when compared to long-term investing. It’s essential for traders to be mindful of trading costs in their overall strategy.