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When should I take profit swing trading?

Last Updated on 11 September, 2023 by Samuelsson

One of the qualities of a good swing trader is knowing when to take profit. It can be very painful to watch your profits turn to a loss because you are not sure of the right moment to secure the gains you’ve had. The problem is not just about the profits lost but what the experience will cause to your trading psychology.  So, when should you take profit in swing trading?

When swing trading, you should take profit whenever you think that the price swing is about to end. There are a few ways you can determine this, and they include important price levels, the appearance of the opposite signal, and a set time.

In this post, we will discuss those methods of taking profit in swing trading and how to determine the best method for you, but first, let’s understand what swing trading is about.

When should I take profit swing trading?

What swing trading is about

Swing trading is a style of trading that sets out to profit from medium-term price moves that last from a few days to a few weeks. It is often recommended for beginner swing traders because it is not as fast-paced as day trading since chart analysis and trading is done on the daily timeframe.

The aim of swing trading is to enter a trade at the beginning of a price swing and get out when the swing is about to end. So, your method for taking profit should target when the price swing is about to turn and start the opposite swing, and there are many ways to do that.

The different ways to take profit in swing trading

As you would expect, different traders use different mechanisms for securing their profits in swing trading. Let’s take a look at some of them:

The appearance of the opposite signal

One sure way to know when to take your profit and walk away is the appearance of your trading signal in the opposite direction to your trade. What it means is that another trade setup may have formed in the other direction, and depending on whether your trading plan allows trading in either direction, you may consider trading it.

But for the open position, the least you could do is to take your profit knowing quite well that with that opposite signal, the probability of a price reversal is high. Not taking profit at that stage could mean painfully watching your profitable trade turn to a loss.

For example, if your swing trading strategy is to buy when the RSI is in the oversold region, it makes sense to take profit when the RSI shows an overbought signal.

Setting a profit target

Another popular method is to set a profit target so that when the price gets there, your trade would be automatically closed. When setting a profit target, you need to identify the price levels that could serve as potential price reversal levels — a resistance level or support level.

When you are going long, set your profit target below a resistance level because the price is likely to turn downwards at that level. If you are short, set your profit target above a support level so that you take profit before the price potentially turns upwards from that level.

A time-based method

Some swing traders also use this method for taking profit. What they do is to close their trade after a certain number of days. Once the set time reaches, they close their trades. This method is for experienced traders and is mostly used when there is a specific event that affects the price of a stock. Experienced traders try to estimate how long the effect would last and take their profit within that period.

How to determine the best take profit strategy for you

So, which method is best for you? Well, the truth is, only you can determine that. Here’s how you go about it. Get the historical data of the market you want to trade and check which of the take profit methods worked best for your trade entry strategy. This is called backtesting, and you can either do it manually or with the help of a strategy tester if the strategy can be automated and you have the script. Alternatively, you can front-test the various methods through paper trading.

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Final words

Knowing when to take profit is a very important part of your swing trading. In fact, your trading success depends on your ability to take profit at the right time and not allowing your profit to get eroded or even turn to a loss. There are many ways to take profit in swing trading, and we have discussed some of them. 

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

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