Last Updated on 17 November, 2020 by Samuelsson

Swing trading seems to be the most popular trading style among active traders, and you may have been hearing about it and wondering what it is all about. Most people fail in stock trading due to a lack of knowledge, so it makes sense to want to know what swing traders look for.

Swing traders look to make money from the financial markets by actively trading medium-term price movements, unlike investors who invest for the long term. However, swing traders don’t get glued to their trading screen as day traders do; they manage their trades on the daily timeframe which prints a price bar only once a day.

Read on to find out more. In this post, we will discuss the following:

  • Who swing traders are
  • What they look to get from the market
  • The markets they trader
  • How swing traders find trading opportunities
  • Whether swing traders can become rich
  • How to start making money from swing trading

Who are swing traders?

Swing traders are active traders who look to stay in the market for a few days or a couple of weeks. They practice a style of trading that sets out to profit from medium-term price moves. Those are the moves that occur as individual price swings on the daily timeframe, and they tend to last from a few days to a few weeks. On rare occasions, the moves can last for several weeks.

To put it simply, a swing trader leaves his/her trades open beyond the trading day but not more than a few weeks. So, a swing trader lies in the middle of the spectrum between day traders, who close their trades on the same trading day, and position traders/investors, who leave their trades for several months, years, or even decades. 

For most swing traders, technical analysis is their method of analyzing the markets to find tradable opportunities in the markets. These traders study the price charts on the daily timeframe but may step down to the 4-hourly timeframe to pick better trade entry levels when a trade setup is forming. On rare occasions, some swing traders do combine their technical analysis with fundamental factors.

Unlike day traders who spend all day on their trading screen, monitoring and analyzing the price charts on the lower timeframes, swing traders only need to check the charts at the end of the trading day (or every 4 hours when a trade setup is in sight). If you’re a new trader, you may want to become a swing trader, especially if you want to trade part-time while keeping your 9-5 job.

What do swing traders look for in the market?

Swing traders look for opportunities to make money from small price moves. As you know, the price doesn’t move in a straight line, instead, it moves as a wave with up and down swings. The swings that move in the direction of the overall trend are normally big and prolonged compared to the opposite swings, and they are called the impulse waves. The swings that move in the opposite direction to the trend are called corrective waves or pullbacks, or retracements.

Naturally, swing traders aim to trade the individual swings, one swing at a time. However, they tend to focus more on the impulse swings in the direction of the trend, especially if it is an uptrend. Going short on stocks can be very risky because a stock can potentially rise forever while it can only fall to zero. Hence, even in a downtrend, trading the downward impulse waves can be quite risky. This is also true when the market is in a range: it is best to trade only the upswings.

There are different things swing traders look for when determining which asset to trade and when to place a trade. When it comes to stocks, swing traders usually look for heavily traded stocks that are near their key support or resistance level. In these situations, swing traders will look for several different ways to analyze the market and often make use of tools and patterns, such as triangles, channels, Wolfe Waves, Fibonacci levels, Gann levels, moving averages, and other indicators designed to spot when the market is oversold/overbought, there is a breakout, or the price is about to resume its movement in the trend direction after a pullback.

But most importantly, a swing trader must be able to know whether the market is suitable for swing trading.  A suitable market for swing trading must be one that has enough liquidity and optimal volatility. Market liquidity refers to the trading activity in the market. How active is the market?  

If you want to trade a stock, you should first find out the average trading volume and the number of transactions on the stock per day. Those would tell you how liquid the stock is. A liquid market makes it easy for you to get in and out of the market at any time as there will always be people to take the opposite end of your trades.

On the aspect of volatility, the market needs to have adequate volatility to be able to make you money. Volatility is a measure of the size of price movements and how fast the moves occur. A market that does not have enough volatility will take a lot of time to make a reasonable move that can make you money. As a stock swing trader, you want to trade a stock that can make up to a 5% move in a week or two.

Which markets do swing traders trade?

Swing trading is just a trading style. As a swing trader, you can trade any financial market. Although the various financial markets, such as the stock market, bond, forex, commodity, futures, and options, may require different approaches, there are swing traders in all those markets. Some swing traders trade more than one market at a time — with different strategies for each market. A swing trader can have a set of strategies for trading stocks and another set of strategies for trading commodities or bonds.

One of the main differences is the ease with which you can trade in either direction — long or short.  For example, in the forex market, you can easily go long or short by exchanging one currency for another at any time without anything special. However, in the stock market, to go short on a stock, you are actually borrowing the stock from the broker to sell with the hope of buying them back for the broker when the stock’s price falls. This is one of the reasons why stock swing traders mostly look to go long on a stock rather than go short.

But for us at the Robust Trader, we are focused on the stock market. We trade mostly U.S. stocks, so most of our analysis and discussions are focused on stock trading, especially those stocks that are quoted on the New York Stock Exchange, Nasdaq Exchange, and other stock exchanges in the US.

How do swing traders find opportunities in the stock market?

There are many strategies swing traders use to identify potential trading opportunities, but here, we will discuss the few reliable ones:

  • Mean-reversion strategies
  • Breakouts
  • Momentum strategy

Mean-reversion strategies

Mean reversion is one of the most common concepts used in swing trading. The idea is based on the fact that the market tends to make extended moves to either side of its mean but always tries to revert to the mean. In the process of going back to the mean, it overshoots again and tries again to revert to the mean again.

The swinging movement creates tradable opportunities that swing traders try to profit from using different indicators and strategies. Most of those strategies can show long and short setups, but we will focus on only the long setups. Here are some of the strategies that are based on the mean-reversion concept include:

  • The RSI method: In this method, you use a 2-day RSI and 200-day moving average. A buy setup is formed when the price is above the 200-day moving average, implying that there is an uptrend, and the 2-day RSI crosses below 10, indicating that the market is temporarily oversold. The 2-day RSI crossing above 60 is an indication to close the trade.
  • The Bollinger band method: Here, you use the Bollinger Bands indicator to determine the price mean and the oversold level. The Bollinger Bands indicator consists of three lines, which are the 20-period moving average line at the middle plus a lower band and an upper band that are two standard deviations away from the middle band. You have a buy signal when the price closes below the lower band of the Bollinger Bands indicator. Your exit should be when the price climbs above the middle band.
  • The moving average method: Here, a buy setup forms when the price falls lower than the predetermined level below the moving average that indicates an oversold market. A bullish reversal candlestick pattern, such as the hammer, bullish engulfing pattern, or three outside up pattern, may be your entry trigger. Close the trade when the price climbs above the moving average.
  • The double seven method: You can use a 200-day moving average to know when the trend is up. In an uptrend, when the price closes at a new seven day low, a buy setup is formed. The exit is when the price makes a new seven day high.

Breakouts

With a breakout strategy, you aim to buy the stock when the price breaks above a known resistance level, such as the 20-day high. A breakout indicates a huge buying momentum in the market, which might push the price higher.

Momentum strategy

This is also known as the trend-following strategy, and it aims to trade in the direction of the trend after a temporary pullback in price movement. Here, you are looking to trade the impulse wave in the trend direction. You can use oscillators, trend lines, and bullish reversal candlestick patterns to trade this strategy.

Can swing trading make you very rich?

Well, it depends. With adequate capital, the right trading strategies, excellent execution skills, and determination, you can become rich swing-trading stocks. Many traders have done it in the past, and you too can do it. On average, swing traders make about 20-40% profit per annum, which means that they can double their account in less than 2-3 years. If you start with up to $100,000, in 10 years, your account would have grown to almost $3 million.

You can even average more than 50% per annum if you get things right. However, how much money you can make from swing trading depends on a lot of factors, such as the following:

  • The trading strategies you use
  • The number of trade setups you get
  • Your consistency in executing your trades
  • Your position sizing

How to start making money from swing trading

There are two ways to this:

  • Learn how to do your analysis yourself
  • Subscribe to a trading signal service

Learning how to analyze stocks

Though it may be possible to learn swing trading on your own, the easier way to do it is to enroll in the Robust Trader’s Swing Trading Course. This beautifully organized swing trading course teaches you four ready-to-trade strategies that the Robust Trader uses in their own trading. It will also teach you how to manage risks and how to develop the mindset of a successful trader.

Subscribing to a trading signal service

You can start making money without knowing how to analyze stocks by subscribing to a reliable swing trading signal service that delivers high-quality trading signals to your inbox every morning before the New York Stock Exchange opens. The Robust Trader’s Swing Trading Service has a 6-years record of success, with more than 74% winning trades and a profit factor of 2.2, which makes it about the best swing trading signal for stock trading.

The signal is easy to follow. It tells you which stocks to trade; whether to buy, sell, or hold your position in those stocks; and where to place your stop loss and profit target. You can enjoy the service at $1 for the first month and $34.95 per month thereafter.

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

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