Swing Trading: What It Is Plus Key Strategies & Tips

Swing Trading: What It Is Plus Key Strategies & Tips

In this post, you’ll learn how to use the best simple swing trading strategies, how to look for stocks to trade, and some awesome setups.

Swing trading is a method that’s accessible to new traders. It’s also a great skill set to have in your repertoire.

Swing trading strategies are fairly easy to grasp. This trading style doesn’t require the same urgency and split-second decisions as day trading.

For many people, swing trading is a great way to ease into trading. It can help you build good habits that will serve you no matter which direction your future in the market takes you.

Here’s your introduction to swing trading — what it is, how to look for stocks to trade, and some swing trading strategies.

What Is Swing Trading?

What Is Swing Trading?
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First things first: What exactly is swing trading?

Swing trading is a trading method where you hold a stock position for a short period of time.

In day trading, you move in and out of a trade within the same day. But swing trading positions can last anywhere from a couple of days to several months.

The idea is that you hold onto a stock to profit from its price change or ‘swing’. These price swings are where this trading style gets its name.

How Does Swing Trading Work?

How Does Swing Trading Work?
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The basic idea behind swing trading is trying to capture a profit from a movement in the price of a stock or ETF. When swinging a long position, the goal is to buy low and sell high. When swinging a short position, the goal is to sell high and buy low.

The basic concept of swing trading is simple. Find a setup and enter the trade. Then hold your position until the trade moves against your theory or hits your profit target Simple right?

In reality, the actual execution gets a little more complicated. Read on — I’ll cover the setups to look for and smart the tools to help you find trades.

Swing trading can be a great way to get started in the market, especially for part-time traders. But be prepared to study. There are no short-cuts to success in the stock market. And there will always be a price to pay.

Examples of Swing Trades

Apple Inc. (AAPL) had a decent swing trade setup in October 2019. AAPL had a breakout, and the price finally made a new all-time high above $232.

The price then proceeded to surge upward to more than $320 in January 2020. This was an incredible swing of nearly $100 per share. Mega-cap stocks like this don’t make this type of move often — it was hard to predict.

Tesla, Inc. (TSLA) had a similar setup in December 2019. After years of struggling to break above $390, the stock price finally did it. The price recently peaked near $970 — it was a wild ride. Check out how TSLA traded like a penny stock here.

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Swing traders try to find these stocks at the start of the swing. The goal is to ride the move’s momentum while potentially limiting downside risk.

I’m not much for expensive stocks like AAPL and TSLA. But some traders find success with them. Find what works for you and stick with it.

My preferred style is day trading penny stocks. This niche can see massive swings in a single day.

Swing Trading vs. Day Trading

Swing Trading vs. Day Trading
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What’s the difference between swing trading and day trading? Let’s tackle this now. While swing trading bears some similarities to day trading, there are several important differences.

One key difference is timing.

  • In day trading, you hold a stock for a very short period of time. That might be minutes or hours, but you buy and sell on the same day.
  • With swing trading, you might hold a stock for a few days to a few weeks or even several months.

Another big difference is trend awareness. Swing trading can be more like trend following or trend trading. You look at the overall trend of the stock’s chart pattern. And you consider the stock’s fundamentals or news that could move the stock price.

You’re really trying to determine if there’s room for the trend to continue.

Is Swing Trading Better Than Day Trading?

You can’t ever say one style of trading is better than another. I like to day trade penny stocks. I know this niche well. It works for me…

But occasionally I have short swing trades. And I mean short. On these trades, I tend to hold overnight. I might buy at the close and sell at the open the following day.

Some of my students prefer trading over longer periods of time. Mark Croock will take on swing trades when the market conditions are right.

So to answer the question plainly … it depends. Some of my students work 9–5 jobs — swing trading can work better for them. And other students work evenings and can watch the market during the day. Some of these students prefer to day trade.

Your schedule and when you’re available to trade are part of the Skyes Sliding Scale. You have to find a strategy that suits your lifestyle.

Pick one to start and see how it goes. Trading is hard. Learning to trade is extremely hard. Go at your own pace. Learn a few patterns to start. You can branch out into other trading styles once you find consistency.

Swing vs. Position Trading

Swing vs. Position Trading
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Swing trading, like day trading, is still trading. When you enter any position, you should have a trading plan. That includes where you’ll exit and your profit target. It should also include a stop in case the trade goes against you.

Remember to always cut your losses quickly. That’s rule #1 no matter your trading style.

Swing trades typically last a few days, weeks, and occasionally months.

Position trading is the classic buy and hold. Position “traders” are actually more like position holders. They enter positions and hold for months or years.

That can work for traders or investors with large accounts. But if you want to grow a small account, there are other strategies. Day trading or swing trading can allow you to grow your account much faster than position holding or position trading. But you gotta study and work your butt off…

If you’re new to penny stocks, read “The Complete Penny Stock Course” by my student Jamil. It answers trading questions that I get a lot.

Benefits of Swing Trading

Benefits of Swing Trading
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What’s so great about swing trading? Well, several things …

First, swing trading can be an accessible strategy even for newer traders. While the pace is fast, it’s not as fast as day trading. That can give you a little more time to think out your process and make educated trading decisions.

For many, the lightning-quick pace of day trading can be overwhelming at first. Swing trading can be a great entry to day trading. It provides a framework for a strong trading practice.

This doesn’t mean that it’s totally relaxed. But since you’re only holding on to the stock for a short period of time, you can take advantage of the market volatility and potentially take profits from trades in a relatively short window.

Another benefit of the shorter time frame is that it allows traders to focus on the trade entry and exit.

Often, when you take long-term position trade, you can forget about the stock. Or it can be easy to stop being diligent. So it’s easier to lose track of what’s going on in the market and miss a key moment to exit the trade.

Put more bluntly, it’s easy to get lazy with position trades. The short time period in swing trading can help you develop routines and keep you focused on the market.

Risks of Swing Trading

Risks of Swing Trading
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All trading is risky. So you have to learn to manage your risk. It’s crucial to your survival in the markets. Each type of trading comes with its own set of risks.

There’s a reason my number-one rule is to cut losses quickly. You have to understand that any trade can go against you at any point. You have to learn to limit your risks.

Swing trading involves holding stocks overnight or longer. And that can open you up to risks that day traders don’t tend with as much … NEWS!

Outside of trading hours, companies are more likely to release press releases, earnings reports, and new stock offerings. All of which can cause massive price swings.

A good earnings report or press release can send the stock’s price higher. But an offering or bad earnings report can send the price falling. When the price moves outside of normal trading hours you may not be able to sell if you don’t have the right brokerage.

Holding positions overnight can mean extra risk.

Is Swing Trading Profitable?

Is Swing Trading Profitable?
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Short answer: it can be.

But it takes work and discipline. You have to choose stocks with movement. You gotta learn to let winners run and cut losses quickly.

Some of the best stocks for swing trading have high trading volume. Volume is the number of shares bought or sold each day. For swing traders, constant price fluctuations — even small ones — can be beneficial.

But like any trading or investing, it depends on the market conditions … Strong bull markets are great for savvy swing traders. Choppy markets can prove more difficult.

Determining the market sentiment can prove challenging, particularly to new traders. However, with time, practice, tons of studying, and experience, it will become easier.

Which Type of Stocks Are Best for Swing Trading?

Which Type of Stocks Are Best for Swing Trading?
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The short answer: stocks in play. The longer answer is that any stock could potentially be a swing trade candidate.

Here are two resources that can help you find the best stocks to trade.

First is my Trader Checklist. This can help you think about everything that goes into a trade. Get ready to study — it’s 12 hours long. There are no shortcuts in the stock market.

The second is Stocks to Trade, which you can try for as little as $7. I use this tool every day. Full disclosure: I helped design it. And the StocksToTrade team constantly updates the scans to help you find awesome trades.

The 3 Best Swing Trading Strategies

While there are endless variations of swing trading strategies, several setups are considered traditional swing trading strategies.

Here are some important ones you should know.

1.) Breakouts

A breakout strategy is where you take a position on the early side of the uptrend.

Here, you monitor stock, and when the price enters into uncharted territory, you get into the trade. Like the TSLA and AAPL examples from earlier, it’s best when there’s a clear line of resistance on the chart.

Defined levels of resistance and strong volume are key. Of course, you’ll also monitor catalysts and other factors that might affect the price of a stock — those are important facets too.

2.) Breakdowns

A breakdown is the opposite of a breakout. It’s where the stock price drops below a defined support level.

With a breakdown, the chart moves into lower prices. Traders aim to profit from the decline by shorting the stock as it breaks support.

3.) Options

This is a more complex strategy that can deliver huge swings. The swings in calls and puts options are unmatched in the rest of the market.

But it also means big risks. If you have a small account, options trading isn’t for you. It’s also more complex — not great for beginners. But once you get some serious experience, it could be an option…

Top Chart Indicators for Swing Trading

Top Chart Indicators for Swing Trading
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What should you look for in a profitable chart? Let’s break it down. It’s important that you know how to read charts for swing trading.

1.) Moving Averages

Moving averages are an important factor in determining support and resistance levels. They can also help you determine the current market climate. There are two key types of moving averages.

  • The simple moving average (SMA): The SMA can help you determine the current direction of the market. Is it bullish or bearish? Sometimes SMA acts as support and resistance levels, which can help you decide where and when to enter and exit a trade.
  • The exponential moving average (EMA): More weight is placed on recent data to more closely match the current market sentiment. Once again, it can serve as support and resistance and help guide your entries and exits.

Some prefer SMAs while others prefer EMAs. Either is fine, but don’t try to use both. It gets too confusing.

2.) Float

A stock’s float can be influential in helping you decide whether a trade is worth taking.

The float is the number of shares that are available for public trading. But don’t confuse it with the shares outstanding — that figure includes restricted shares.

You’re aiming for the Goldilocks zone here. You don’t want an excessive float, because a massive float, it’s harder for the stock to move. A stock that has a smaller supply of shares is more likely to make a bigger move.

This boils down to the laws of supply and demand. When the demand exceeds the supply, in this case, the float, the price moves up.

Compare the float against the volume for reference. A large float stock can still make a big move with enough volume.

3.) Short Interest

Short interest can help expand your knowledge before making a swing trade. It’s a ratio that compares the number of floating shares to the number of shares short.

Short interest is calculated on a monthly or bi-monthly basis, so there’s no truly accurate source of data. But it can give you a reference point. Say there are 10 million shares sold short and only 5 million shares traded since that’s reported … It is safe to say a minimum of 5 million shares still remain short.

So why does that matter? Because a high short interest is an indication that the market is trending bearish with this stock. However, high short interest and an upward trend is a sign that a short squeeze is possible.

If a stock has a relatively high short interest coupled with a positive catalyst, that can drive short-sellers to cover their positions. When lots of shorts buy to cover, they can drive up the price.

4.) Volatility

In the stock market, volatility generally implies greater risk, which means higher odds of a loss.

However, risk can also lead to reward. So it’s important to look at a stock’s volatility along with other aspects such as catalysts.

Plan your entries and exits to keep your risk to a minimum.

5 Key Swing Trading Tips You Should Know Before You Start

5 Key Swing Trading Tips You Should Know Before You Start
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Here are some of my top tips for those who want to get started in this world.

1.) Limit Losses

I live and die by this rule: Cut stock losses quickly. It’s rule #1 because it’s the most important.

Obviously, I don’t want to lose anything. But if it becomes clear that a trade isn’t working, I get out fast.

Don’t hold on hoping to salvage a trade. I look to patterns, not hunches. Don’t try to be a hero — if things aren’t working out for you, in any trade, cut those losses.

2.) Never Risk More Than 1% Per Trade

I constantly tell my students to trade small.

Not every trade has to be a home run. In fact, singles can add up over time.

There’s a commonly held idea that traders shouldn’t risk more than 1% of their total account on a single trade. If you stick to this idea, you can keep losses small. Yeah, it can mean smaller gains, but again, they add up.

3.) Mental Stops

A mental stop is the art of making an internal decision about when you’ll exit a trade or investment.

Consider a mental stop a promise that you make to yourself. But this is key: plan your stop before you enter a trade.

Having a plan in place and using mental stops when trading can help manage risk. If you can stick to your plan, it can help you control your emotions. It can stop you from making bad decisions in your trade.

Stops will help you cut your losses. Use them.

4.) Historical Volatility

The best way to determine future volatility is to look at historical volatility. You can calculate historical volatility by using a mathematical equation.

My student Jamil sums it up easily in “The Complete Penny Stock Course.” The book even includes a step-by-step process on how to easily do this in a spreadsheet. Get the book. Read it. Refer back to it as often as you need.

5.) Stick to Your Plan

Entry, exit, research, calculating risk…

If you’ve gained anything from this post so far, hopefully, it’s the fact that to swing trade well, you gotta have a plan and stick to it.

That means knowing your entry, exit, and potential losses. It also means managing your risk. Cut those losses quickly!

Here’s the thing … Your emotions can take over in the heat of a trade. And that can make you do crazy things. That’s a solid argument for practicing your strategies before you risk real money. (You can paper trade to do that.) And once you start risking actual money, start small.

This rule is important: Stick to your plan.

Make a trading plan and stick to it. Otherwise, you’re just gambling.

Swing Trading ETFs

Exchange-traded funds (ETFs) can be a way to potentially play an entire sector instead of picking individual stocks when a sector starts to heat up.

A great example is MJ, an ETF that follows the cannabis sector. And XLV follows the healthcare sector.

ETFs can be a way to potentially mitigate risk and play a hot sector. I don’t trade ETFs, but it’s good to know what’s out there. So if you’re curious, do your research.

Love penny stocks like I do? Get my FREE weekly stock watchlist here.

Trading Challenge

Trading Challenge
© 2020 Millionaire Media, LLC

I’m known for teaching students how to trade penny stocks, but that’s far from the only thing you’ll learn in my Trading Challenge.

My goal is to teach you how to forge a sustainable, long-term career as a day trader. My team and I strive to educate you on all sorts of different trading styles so that you can diversify and remain nimble in the market.

Think you can make the cut? Apply today and start the process.

What Is the Best Way to Learn These Strategies?

Education. Your trading education is key to a long trading career, whether it’s day trading, swing trading, or position trading.

Commit to educating yourself. But vet your sources and steer clear of fake gurus.

Who Is Timothy Sykes?

I’m a trader and I teach trading. I turned $12,415 into over $5 million.*

I’m self-taught and I want to be the teacher and mentor I never had. I also want more transparency in trading.

That’s why I created Profit.ly. It’s a community of traders who share their trades openly (see ALL my trades here) to help each other learn and improve.

Today, I’m still a trader — but my primary focus is teaching and mentoring trading students. I’m also passionate about making the world a better place through my Karmagawa charity.

The Bottom Line About Swing Trading

The Bottom Line About Swing Trading
© 2020 Millionaire Media, LLC

Swing trading can be a fantastic way for new traders to get their feet wet.

I wouldn’t go so far as to say swing trading is easy. But it can be a more accessible way to start trading and learn all the concepts. It’s not just for newbies either.

The pace, the risk/reward, the routine, can appeal to new and seasoned traders alike. But like anything, commit to building your knowledge account before you start trading. Study hard and work hard. Never assume any trade is safe or a ‘sure thing.’

Ready to take your trading to the next level? Apply for my Trading Challenge. You’ll get a great market education and much more.

(*Please note: my results are not typical. I’ve spent years developing exceptional skills and knowledge. Always remember trading is risky. Never risk more than you can afford.)

Have you tried swing trading? Let me know your thoughts in the comments below!