Introduction: Swing Trading

The stock market is a great method for increasing net worth for individuals and groups—if you know what you are doing. You can be an investor (a person who buys stock in a company  and buckles down for the long haul—and, hopefully, a big payoff much later) or a trader (a person who participates in the market by capitalizing on short-term volatility that can arise from a company’s reputation, products or services, and even global issues). One type of trading is referred to as swing trade.

According to, a basic swing trading definition is that it is a short-term strategy that traders use to buy and sell stocks when technical indicators that suggest price movement (upward or downward) in the near future. But, that sounds like stock trading in general, right?

Well, let’s break it down a bit further by examining four major styles of trading:

  • Scalping is a form of trading that involves making dozens (or even hundreds) of trades per day. This type of trader gets a very small payout from each trade.
  • Momentum trading is unique. Rather than analyzing company data or obsessing over graphs and charts, this type of trader is only interested in newsworthy companies.
  • Technical trading is the opposite of momentum trading. These traders are fixated on graphs and charts. They are looking for signs of convergence or divergence as an indicator of when to buy and sell.
  • Fundamental trading involves an examination of everything that could affect a stock. Outside factors like the economy or the industry carry equal weight with internal factors like a company’s financial health and management strategies.

So, where does swing trade fit in? Swing trading strategies are very risky endeavors. Swing traders are not concerned with the long haul or how well a company will be doing in years to come. It’s about making a substantial gain in a short amount of time thanks to a system shock like a move in interest rates, a supply shortage, or a national or international crisis.

swing trade

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What is a swing trader?

A swing trader might be a seasoned day trader or someone buying their first stock from the comfort of their home. A swing trader is simply a person who buys and sells stock quickly to maximize profit. It might mean holding on to a stock for a couple of weeks or a couple of months.

Swing trade is actually great for the beginning trader because there is potential for significant profit. There is also a chance for significant loss.

Take Craig Ferguson, for example. Ferguson was at home, flipping through the channels when he stumbled across a television show discussing his favorite home improvement store.

“They just happened to be discussing Home Depot. I LOVED Home Depot. It was one of my favorite stores! So I listened and found out that the price of a share of stock in this company was really cheap. So then I thought, ‘Wow, I could buy some of that stock and own a part of my favorite store!’”

So, he went online, signed up with a brokerage firm and bought his first stocks in Home Depot. He bought other stocks. Then, he doubled his money on one of those stocks. Ferguson didn’t understand the basics of stock trading—he didn’t even know that he was a swing trader. He lost all his money. But he was hooked.

Knowing he needed to learn more, he tried to study everything he could about the stock market and buying strategies. He soon found that there was a lot to learn.

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How to swing trade stocks

When considering how to swing trade, it’s important to know the difference between a bull market and a bear market.

  • A bull market shows share prices rising across the board, which encourages buying.
  • A bear market illustrates decreasing stock prices, which encourages selling.

Once you know the difference, you will know the best time to buy your first stock. For the average person, though, swing trading basics vary. Some people may have the education or contacts to analyze complicated company data. Most people do not. Rather than trying to analyze a lot of disparate, technical information, it may be easier for most new traders to follow the money that other people seem to be making.

Making money

According to Ferguson (who went on to make back the money he initially lost), in order to achieve consistent profits, you want to only trade stock trends. But, you have to learn a few swing trading basics. You might also want to consider learning about the various market sectors that influence prices:

  • Technology
  • Services
  • Capital goods
  • Basic materials
  • Energy
  • Consumer staples
  • Utilities
  • Financials
  • Consumer cyclicals
  • Transportation

You will also need to know the stages that those market sectors could be in:

  • Early expansion
  • Mid-expansion
  • Late expansion
  • Early contraction
  • Mid-contraction
  • Late contraction

Then, you combine what you know in both areas to buy and sell stocks.

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What are the best stocks to swing trade?

Once you’ve learned some basics in how to swing trade, you will want to move on to actually buying stocks, right? But, how do you know what the best stocks to swing trade are going to be?

According to Investopedia, the best candidates for swing trade are “large-cap stocks that are among the most actively traded stocks on the exchange. In an active market, these stocks will swing between broadly defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks only to switch to the opposite side of the trade when the stock reverses direction.”

Once you have identified a stock or two to buy, you’ll want to consider some other factors as well. First, you’ve hopefully learned how to read market indicators. lists the signs of a good swing trade candidate:

  • If you are looking to buy or sell stocks, you have identified that the market is amenable to your decision.
  • The industry that you are buying stock in is also going in the same direction that you are, in terms of buying or selling stocks.
  • You have identified that the stock you are interested in is at the right price and does not exceed the lowest price that you would be willing to sell the stock for.
  • Have you identified that the stock is trending either up or down? Does that match the trend that you are in as well?
  • Are you aware of all the information available about the stock, from the company’s fiscal reports to industry growth or loss indicators?

Make sure that you have a definitive amount of money that you are willing to lose given that there is no guarantee that any stock is a “sure thing.”

swing trading strategies

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Swing trading strategies for managing risk

Risk management is an essential aspect for all traders, from the novice to the most experienced. It is also the most important determinant for successful swing trading. Again, according to a Dummies.Com swing trading cheat sheet, you should consider the following before you buy or trade a stock:

  • Ask whether or not the security is liquid. If so, the stock can easily be bought or sold because of the large number of those shares traded every day.
  • Avoid penny stocks. Most penny stocks offer minimal liquidity. Also, so few are traded in a day, it doesn’t take much to lose all your investment.
  • Diversify your portfolio for best results by buying different kinds of stocks in different sectors.
  • Limit your losses. How much money you are willing to lose? Set the risk level on the percentage you are willing to lose (not to exceed 10 percent of your portfolio).

Also, the swing trader is in the best position when the market is not moving between extreme highs or lows. You want the market to essentially be going nowhere. In other words, you want to be able to watch and identify long-term patterns so that you can take advantage of short-term movements.

Consider that this type of trend trading might be best described with some historical analysis: According to Investopedia, swing trade “would have been the ideal strategy for the raging bull market of the last half of the 1990s, while swing trading probably would have been best for 2000 and 2001.”

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Hopefully, you can now answer the question, “What is swing trade?” Most simply, swing trade is the process of quickly buying and/or selling stocks to maximize profits. In some ways, that makes it no different than most other forms of stock trading. The difference is that swing traders are never interested in the long-term potential of a stock.

Swing trade strategies include looking for factors that will manipulate the market to their advantage. It means watching trends more than pouring over financial statements and knowing how to analyze averages, waves, and trends. However, there are also drawbacks to learning how to swing trade. It is important to know the risks:

  • When you start swing trading, the potential to lose money is as high as the potential to make money. According to, “just because the market shows support or resistance at a specific area, doesn’t mean they will be respecting it today.”
  • Dailyforex also explains that you need to be well-versed in technical analysis. It’s not exactly a disadvantage, but it does entail a lot of extra work. “Almost anyone can tell the trend on a chart that is going from the lower left to the upper right over time, but someone trying to swing trade that chart needs to identify entry and exit points.”
  • Swing trading takes a steel stomach since it shares so many similarities to scalping. You have to be able to deal with, and react to, violent market changes.

Finally, you will not be making a mountain of money off of a single stock trade. However, swing traders get to see almost immediate feedback (money gains or money losses), which is what makes it such a great option for new traders.

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