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Swing Trading: Definition, Strategies and Risks 


If you’re stock market regular, you’ve likely heard of day trading: The buying and selling of securities within the same trading day. But maybe you’d like a slightly longer lead time for such transactions. Enter swing trading, which is basically day trading over a somewhat longer period. Here are some basic swing trading strategies.

Do you have questions about building a diversified investment portfolio? Speak with a financial advisor today.

What Is Swing Trading?

Swing trading is a short-term style of trading that usually lasts between 2 to 6 days. However, some swing trading positions can last for weeks or even months. Technical analysis determines most swing trading decisions. That analysis looks at statistics related to a stock and how it’s traded in both price and volume.

Swing trading typically identifies a trend in the market. It then capitalizes on that trend within a short time frame with the buying and selling of securities.

Pros and Cons of Swing Trading

swing trading

Swing trading, like day trading, involves using trends to improve stock portfolios and their value in a short period of time. There are some advantages to this style of trading.

First, it requires less effort and management than day trading, since the buying and selling of securities aren’t limited to one day. However, swing traders can still take advantage of temporary market trends for short-term gains that day trading offers.

But this trading method  doesn’t come without risks. Since these short-term trades can often fall over several days, you run the risk of the price of a stock going down over the weekend or overnight and not being able to sell.

Secondly, swing traders are also more susceptible to market volatility and can suffer massive losses. They also have the potential to miss out on potential long-term market gains while pursuing a short position. Lastly, fees are often higher since these types of portfolios require more management than others.

Swing Trading vs. Day Trading 

Though swing trading and day trading are both styles of active trading that seek to benefit from short-term trades, there are several key differences.

First, day trading involves the buying and selling of securities within a single day. Day traders complete several trades each day, using technical analysis and charting systems to make decisions on trades. Generally, day traders do not hold onto securities overnight. While day trading sounds exciting, it can be hard to turn a profit with this style of trading. Day-trading is usually a full time gig.

On the other hand, swing trading is when trades are made over a short period of time, usually between 2 and 6 days, though some positions can last for weeks or even a few months. As with day-trading, swing trades identify trends within the market and seek to profit on those trends. Swing traders usually are part-time.

How to Become a Swing Trader

Becoming a swing trader requires keeping a few important things in mind. Firstly, don’t expect this to become a full-time thing. Unlike day traders, swing traders generally are only part-time, since trades don’t occur every day. Secondly, you probably won’t make a profit right away. As with anything, mastering swing trading takes practice. That, paired with this style of trading’s inevitable volatility, means that you will likely take a loss, probably when you first start out.

In order to be successful in the world of swing trading, you’ll need to do a few things: Familiarize yourself with the market, especially early in the morning. It’s wise to identify potential trades, the overall feel of the market, as well as potentially hot sectors of business before the opening bell.

Another important aspect of swing trading is the use of technical analysis. That’s because swing traders primarily use this type of analysis to determine positions and make buying and selling decisions.

You’ll also need to think ahead of the day’s trades and positions. Have a list of potential positions and securities to watch in the coming weeks. That way, you’ll be able to stagger your positions and hopefully start to turn a profit. And if you don’t make a profit right away? Don’t get discouraged. It’s all part of the game.

Bottom Line

swing trading

Swing trading is similar to day trading in that it’s a short-term style of trading that takes advantage of market trends to make a short-term profit. However, swing trades usually last between two to six days, though some can last for weeks or even months.

The primary goal of swing traders is to identify a trend in the market and capitalize on that trend within a short time frame with the buying and selling of securities. Since swing trades can often fall over several days, you run the risk of the price of a stock going down over the weekend or overnight.

Investment Tips 

  • If you’re not sure how to diversify your portfolio, a financial advisor may be able to help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Want to know how your investments might grow over time? How much investment risk you’re willing to take? How much inflation and capital gains will take out of your investment? SmartAsset’s investing calculator can help you sort out some of the initial details.

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