Swing Trading Tips

Swing trading is a strategy used to capture gains in stock by holding it overnight or for up to a few weeks. In order to swing trade, you need to analyze stocks to find possibilities with short-term opportunities. Swing trading offers small gains, but consistently earning these small gains adds up to large annual returns. There are several strategies that successful swing traders use. Here are some swing trading tips for the beginner.

#1. The Goal of Swing Trading

Swing tradingĀ uses analysis to identify overall trends and then captures gains by trading within the trends. The target profit goal is just 10 to 15 percent for most stocks instead of the typical 20 to 25 percent. The average time for a trade is between five and 10 days, but the small weekly gains quickly add up. It’s also important to remember that you need to factor in losses. Swing traders will take their losses quicker and at a maximum of 2 to 3 percent, and it’s essential to stay within this number in order to stay successful.

#2. The Difference Between Day Trading and Swing Trading

It’s important to point out the difference between day trading and swing trading. While day trading closes out before the market close, swing trading has a minimum of an overnight hold. By holding overnight, swing trading uses the unpredictability of overnight risk. It also involves smaller purchases when compared to day trading.

#3. Looking for Stocks for a Swing Trade

One of the ways you can find stocks that would work for a swing trade is by looking for upcoming catalysts, such as regulatory events and scheduled earnings reports. A good example is the monthly auto sales report. This comes out on the first Tuesday of each month. Looking at the strengths and weaknesses in this report can provide some opportunities in car manufacturing stocks.

#4. Learning the Strategies

There are a few different strategies you can use for swing trading, but the first step is to learn the basics of trading stocks. Next, you need to determine which direction the market is heading and only take trades in the direction of the trend. You never want to trade in a dead market. Swing traders make their money when the markets are volatile. The best time for swing trading is when the indexes rise for a few days and then decline for the next few days. Finding these trends will allow the swing trader to capitalize on the short-term movements up and down.

#5. When To Avoid Trading

You want to avoid trading during holiday seasons and refrain from trading during lunch sessions and other times when the markets are dead. You also want to avoid trading right before earnings announcements. You can determine a dead market by looking at the volume. Check the average volume and compare it to the last five trading sessions.

Make sure to do your research before getting involved in swing trading. You also want to have plenty of resources available so you can get your questions answered quickly and accurately.