Swing Trading

Swing Trading is a style of trading in financial markets that focuses on identifying the cyclical nature of price movements. Positions are usually held open for 2-3 days or more.

This approach assumes that each trend consists of several phases of growth and decline. Swing traders try to capitalize on these short-term impulses and corrections. Swing traders tend to keep positions open for several days to take advantage of large market trends.

It is important to note that trading in the financial markets does not guarantee profit and is always associated with risk.

The swing trading approach is universal and can be applied when trading different financial market instruments: stocks, bonds, stock indices, Forex, metals, energy, and others.

Types of Instruments for Swing Trading

According to the definition, Swing Trading is a uniform trading style that can be applied in a wide variety of markets as a stand-alone analysis tool or as part of a more comprehensive trading strategy.

➡️ Having answered the question "What is Swing Trading?", let's examine its application in practice. Let's consider below the characteristics of using the Swing Trading method for different classes of trading instruments:

Swing Trading in the Forex market.

Swing trading in the stock market: stocks, bonds, ETFs.

Swing trading and stock indices.

✅ Swing Trading in the Forex Market

➠ What is swing trading in the Forex market? By definition (def), it means applying the Swing Trading approach to the foreign exchange market. The analysis process might look like this:

1. The trader selects the currency pair he is interested in and the timeframe that suits him.

2. The trader determines the direction of the main trend in his trading range.

3. Within this trading range, the trader identifies the rising (impulses) and falling (corrections) phases of the quotes. For this purpose, you can use different analysis tools: Elliott Wave Theory, Donchian Channel, Bollinger Bands indicator, etc.

4. The trader determines the current phase and looks for suitable areas to open positions.

✅ Stock Market Swing Trading: Stocks, Bonds, ETFs

By definition, Swing Trading of stocks, bonds, and ETFs is similar to trading in other markets. How do you swing trade in the stock market? Let's look at a few ways to open and close positions.

1. Trading within the channel. This method involves identifying the price channel and opening and closing trades at its borders.

For example, opening buy trades near the lower limit of the channel and closing them near the upper limit. Or, opening a sell trade near the upper boundary of the channel and placing the take profit order near the lower boundary.

2. Trading within the Elliott Wave Theory. According to this method, the market is constantly moving in a certain trend. If the trend is not visible, the timeframe should be changed.

➠ The movement within the trend has both impulse and correction periods. Elliot's theory implies that.

- Each impulse consists of five waves, and

- Each correction consists of 3 waves.

Each of these waves has its name and potential limits that can be calculated using Fibonacci methods. Swing Traders can detect the emergence and end of each of these waves and trade them.

3. Trading using the Zig-Zag indicator. This indicator is available for free on the MetaTrader trading platform. It automatically shows the trader past trend movements, the size of which depends on the parameters the trader sets when using the indicator. 

✅ Swing trading and stock indices

➠ How to enter a position in stock index trading? There are several ways. Including the ones, we talked about in the paragraph above. However, it should be noted that there are some important characteristics of stock index trading.

Many stock indices tend to rise over the long term. They move to new highs and repeat historical highs with enviable frequency. There is a fairly limited set of markets that can do the same. Therefore, stock indices must be traded in a certain way.

Characteristics and Features of Swing Trading

After choosing the trading instruments, you need to get acquainted with the principles of trading on financial markets. Let's consider some issues.

➡️ Swing Trading in intraday format - advantages and disadvantages. Intraday or Day Trading, by definition, involves opening and closing trading positions during a trading day without transferring an open position to the next day.

The versatility of the swing trading approach allows it to be used on a wide variety of timeframes. Therefore, by definition, swing trading can be used for intraday trading.

The disadvantage of using the swing trading approach for intraday trading is a fairly high degree of uncertainty and signal imprecision. This applies to many intraday trading strategies.

Typically, during the day, a trader sets fairly low stop-loss and takes profit levels, so high volatility carries risk for the trader.

➡️ What is scalping within swing trading? By definition, it means opening short-term positions based on Swing Trading signals. For example, a trader may use the above technical indicators and analysis tools at the M1 (1 minute) and M5 (5 minutes) timeframes. For this reason, movement between channels or the formation of Elliott waves can occur quite quickly on a trader's chart.

➡️ How do you make a trading plan? To do this, a trader must determine his or her earnings goals, choose trading instruments that are interesting and understandable to him or her, perform an analysis using the analytical tools available to him or her (Swing Trading or Price Action), and determine levels for opening and closing positions. Mastery comes with practice.