Swing trading is a speculative

trading strategy In finance, a trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets. The main reasons that a properly researched trading strategy helps are its verifiability, quantifiability, consiste ...

in financial markets where a tradable asset is held for one or more days in an effort to profit from price changes or 'swings'. A swing trading position is typically held longer than a

day trading Day trading is a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day, so that all positions are closed before the market closes for the trading day to avoid unmanageable risks a ...

position, but shorter than

buy and hold Buy and hold, also called position trading, is an investment strategy whereby an investor buys financial assets or non-financial assets such as real estate, to hold them long term, with the goal of realizing price appreciation, despite volatilit ...

investment strategies that can be held for months or years. Profits can be sought by either buying an asset or

short selling In finance, being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the ...

. Momentum signals (e.g., 52-week high/low) have been shown to be used by financial analysts in their buy and sell recommendations that can be applied in swing trading.

Swing trading methods

Using a set of mathematically-based objective rules for buying and selling is a common method for swing traders to eliminate the subjectivity, emotional aspects, and labor-intensive analysis of swing trading. The trading rules can be used to create a

trading algorithm Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of ...

or "trading system" using

technical analysis In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...

fundamental analysis Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall sta ...

to give buy-and-sell signals. Simpler rule-based trading approaches include Alexander Elder's strategy, which measures the behavior of an instrument's price trend using three different

moving average In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. It is also called a moving mean (MM) or rolling mean and is ...

s of closing prices. The instrument is only traded Long when the three averages are aligned in an upward direction, and only traded Short when the three averages are moving downward. Trading algorithms/systems may lose their profit potential when they obtain enough of a mass following to curtail their effectiveness: "Now it's an arms race. Everyone is building more sophisticated algorithms, and the more competition exists, the smaller the profits," observes Andrew Lo, the Director of the Laboratory For Financial Engineering, for the

Massachusetts Institute of Technology The Massachusetts Institute of Technology (MIT) is a private land-grant research university in Cambridge, Massachusetts. Established in 1861, MIT has played a key role in the development of modern technology and science, and is one of the ...

.'' International Herald Tribune'', November 23, 2006. https://www.nytimes.com/2006/11/23/business/worldbusiness/23iht-trading.3647885.html Identifying when to enter and when to exit a trade is the primary challenge for all swing trading strategies. However, swing traders do not need perfect timing—to buy at the very bottom and sell at the very top of price oscillations—to make a profit. Small consistent earnings that involve strict money management rules can compound returns over time. It is generally understood that mathematical models and algorithms do not work for every instrument or market situation.

Risks involved

Risks in swing trading are commensurate with market speculation in general. Risk of loss in swing trading typically increases in a trading range, or sideways price movement, as compared to a

bull market A market trend is a perceived tendency of financial markets to move in a particular direction over time. Analysts classify these trends as ''secular'' for long time-frames, ''primary'' for medium time-frames, and ''secondary'' for short time-fram ...

bear market A market trend is a perceived tendency of financial markets to move in a particular direction over time. Analysts classify these trends as ''secular'' for long time-frames, ''primary'' for medium time-frames, and ''secondary'' for short time-fram ...

that is clearly moving in a specific direction.

Swing trading methods

Risks involved

See also

References

Further reading