Back

Swing trading: navigating short-term market trends

Swing trading strategy
Speculative traders prefer tracking short-term trends and developing trading strategies according to these trends. These investors have developed numerous approaches to take advantage of asset price changes that occur over a short period. One such approach is swing trading.

Content:
  1. What is Swing Trading?
  2. Swing trading to keep up with market volatility
  3. Swing trading supported by technical analysis
  4. Swing trading vs day trading
  5. Swing trading with CFDs
  6. Conclusion
  7. FAQ: Optimize your swing trading with InvestBy

What is Swing Trading?

Swing trading is a short-term market strategy aimed at capturing potential profits that may occur with asset price swings. The main objective is keeping a position open for more than one trading session. Many investors see extreme volatility on financial markets as a risk for their investments and want to refrain from trading. Swing traders, however, see this as an opportunity for active trading. By executing swing trading strategies, investors try to accumulate multiple small gains. Thus, they might be able to accrue relatively large profits.

Swing trading to keep up with market volatility

Swing traders buy and sell preferred assets in a short time to make the most out of large price swings. The timeframe for a swing trading strategy ranges from a few days to a few weeks, which makes this strategy considered short-term. However, some traders may hold a position open for several months while pursuing mid-term trading opportunities. Such cases happen less often since speculative strategies aimed at longer-term trends increase the risk of magnified losses.

Swing trading is suitable for any asset type, including cryptocurrencies, stocks, indices, forex, and commodities. For example, they could add Bitcoin or Ethers to their financial portfolios since these are the most popular and actively traded cryptos. Or they could add the most liquid stocks, like Facebook, Amazon, Apple, or Tesla shares, since many people are willing to buy these. Indices with actively traded stocks also work for swing traders.

Major currency pairs, such as EUR/USD, GBP/USD, USD/JPY, and USD/CAD, are fitting options for a swing trade. Energy assets from the commodity market usually have large price changes, especially during the COVID-19 pandemic, so traders can use crude oil or natural gas for swing trading opportunities. Regardless of which market they enter, traders choose the most volatile assets. Plus, they always keep in mind that they need to quickly find a buyer or a seller to perform swing trades.

Swing trades are a preferred way for those desiring to accumulate small gains in a short period. Under favorable market conditions, swing trading strategies could potentially bring relatively large profits over several weeks when executed multiple times. However, any profit received from implementing this method cannot compare with the outcomes long-term strategies may bring. For example, investing in a tech stock for several years could turn into thousands of dollars of profit if the tech company thrives.

And even though swing trading seems tempting, investors should be aware that speculating on price fluctuations is unpredictable. Traders deal with volatile assets whose prices can change in a second if affected by political and economic uncertainties. Not all trades will be successful, and swing traders can quickly lose money.

Another downside of any swing trade is overnight and weekend fees. Since investors plan on keeping their positions open for several sessions, market reversal could occur. And a developed swing trading strategy might become irrelevant. Thus, traders face the high risk of substantial losses.

Swing trading in a nutshell:

• Focused on small profits
• Performed in a short time
• Used for any asset type
• Centered on volatile and liquid assets
• Subjected to overnight and weekend fees

Swing trading supported by technical analysis

Technical analysis is one way to develop optimized swing trading strategies. Traders study historical price data and evaluate past market performance. Thus, they try to determine preferred entry and exit points. In other words, they decide at what prices they want to buy and sell securities.

Numerous technical indicators come in handy for conducting this type of market analysis. They help swing traders identify price trends, patterns, volatility, strength, and volume. Different charts allow traders to visualize the data. And after all data is collected and displayed on charts, an investor can set up orders and signals to perform a trade.

Technical indicators used for swing trading

Indicators are mathematical calculations based on a security’s price and volume and are used for forecasting a future asset value. These include:

• Simple moving average (SMA), which helps determine whether a price trend will continue or reverse by calculating the average of all asset prices.

• Exponential moving average (EMA), which shows the same information as SMA but prioritizes the latest price data over older data.

• Standard deviation, which determines market volatility by measuring how asset prices deviate from their average.

• Fibonacci retracement, which identifies security support and resistance levels by taking two market extremes and dividing the distance between them using Fibonacci ratios.

• Relative strength index (RSI), determines asset strength or weakness by measuring the magnitude of recent price fluctuations.

• Stochastic oscillator, which shows whether an asset is overbought or oversold by comparing the asset closing price to its previous prices within a certain timeframe.

Charts used for swing trading

Charts are an essential part of technical analysis. All data received thanks to indicators can be visualized on different types of charts so traders can plan actions in the markets.

• Line charts represent security price history.

• Bar charts show how open, high, low, and closing asset prices have moved over a specific period.

• Point and figure charts display price fluctuations without a timeframe.

• Candlesticks show open, high, low, and closing prices throughout the specific period. Bar charts and candlesticks show the same data but in different ways.

• Bollinger Bands show 3 trendlines: average trend, upper standard deviation, and lower standard deviation.

Orders and signals used for swing trading

Once a swing trader has charted past performance data, they can decide what orders and signals to use.

Trading orders

The commonly used trading orders are Stop-Loss and Take-Profit. A swing trader can set these up to automate their actions in the market. They specify exact points for opening and closing positions, and these orders are triggered when needed.

Here is how these orders work when a short position is opened:

• Stop-Loss order automatically sells an asset if the asset reaches specified swing highs.
• Take-Profit order automatically closes trades when assets reach specified swing lows.

Trading signals

Trade signals are triggers for buying and selling securities. There are two types: buy and sell signals. The signals are set up after a swing trader gathers the data required for their trading strategy.

• Buy signal alerts a swing trader to enter a long position.
• Sell signal alerts an investor to close trades.

Swing trading vs day trading

Day and swing trading are short-term strategies commonly used by speculators. They are very similar. However, day trading implies performing several trades during one market session. Day traders may see this strategy as a full-time job. They need to track every move in a stock chart and follow trend direction to make their investment strategy work. The pro about this trading style is that day traders do not face an overnight risk.

Unlike a day trading, swing trading does not require such vigilance over an asset’s price since an investor does not need to close a trade within one trading day.

Both day and swing traders base their trades on the results of technical analysis. They use the same indicators: Fibonacci retracement, standard deviation, moving averages, stochastic oscillator, and relative strength index. They can also use fundamental analysis to support a technical approach with information about current political, economic, and social events that influence financial markets.

Both types of traders must carefully craft risk management strategies before entering the Forex, commodity, index, cryptocurrency, or stock market. Speculation on price movements is a very risky trading style, and traders can easily lose their money.

Swing trading with CFDs

A contract for difference (CFD) is a financial instrument often used for speculation on the direction of an asset’s price fluctuations. With CFDs, swing traders do not need to own assets to open a trade. Instead, they can make a prediction on the future price of an asset. If the prediction is correct, a broker gives a swing trader the profit. And if not, the trader bear losses.

CFDs are usually traded with leverage. Swing traders aim to magnify their potential profit using this trading instrument. Trading with leverage means a swing trader does not have to cover the lot’s total cost. They can make an initial deposit, and their broker will add the rest of the cost to a trader’s account balance. So, if a trade goes in favor of their prediction, a trader would receive multiplied profits.

However, a leveraged trade can also result in increased losses. CFDs are complex instruments, and there is always a risk of substantial losses. When swing traders speculate on price movements, they should remember that financial markets are affected by political and economic events, which could change the direction of prices at any moment. This is why traders can start losing money rapidly. It is advisable to carefully craft risk management strategies and not invest more than you can afford to lose.

Conclusion

Use your swing trading strategy to identify trading opportunities and jump right into the exciting world of online CFD investments. InvestBy is the online broker that can be by your side to provide you with a secure platform for a better online experience. We also deliver the complete set of services you need to track downward or upward trends in the market, while supporting your trading strategies with moving averages, Bollinger bands, and many more technical tools.

InvestBy helps you take your financial experience to a new level by providing the following advantages:

• Tight spreads
• No hidden commissions
• Dedicated customer service
• Customized trading accounts
• Rich education hub
• Advanced MT4 platform
• Top-notch mobile apps
• Free demo account

Discover the world of financial opportunities with InvestBy.

FAQ: Optimize your swing trading with InvestBy

How can I start swing trading via CFDs?

At InvestBy, we have designed a registration process that is quick and intuitive. If you want to start swing trading CFDs in the stock, commodity, index, cryptocurrency, or Forex market, you can become an InvestBy client in 3 simple steps:

1. Register by providing us with your full name, home address, and phone number.
2. Complete a questionnaire with details about your trading experience.
3. Verify your account by sending us copies of your ID and proof of residence.

Why do swing traders fail?

A swing trade in any market is affected by quick and unpredictable price changes. These can happen because of terrorist attacks, natural disasters, global pandemics, changes in unemployment rates, inflation, deflation, and many other reasons.

Plus, some traders may not know how to conduct technical analysis and thus cannot correctly apply the results received from using moving averages, Fibonacci retracement pattern, stochastic oscillator, or other indicators.

Before entering the financial market, every swing trader should polish up their knowledge and skills (for example, using InvestBy’s education center) and stay tuned to global events.

Is swing trading safer than day trading?

Speculative strategies, whether swing or day trading, are always risky. The main point of these strategies is speculation by making predictions on price movements. And no one can be 100% sure what the future asset price will be. So even with a well-elaborated strategy, a trader can lose investment funds because of market reversals.
Open account