If you hope to become a profitable swing trader, you need to begin by understanding the swing trading basics: and that’s what we’re going to provide in this beginner guide to the best swing trading strategies.
Sure – a swing trading tool like VectorVest can essentially pick winning trades for you and eliminate most of the work on your end. It provides you with a clear buy, sell, or hold recommendation for any given stock – but where do these recommendations come from?
VectorVest uses mathematical models to follow trends & patterns and make accurate predictions – which is something you need to know how to do on your own, too. Using technical analysis to make predictions and time the market effectively will make or break your success with swing trading.
That’s why today, we’re going to cover swing trading for beginners. In this short guide, you’ll learn how to do swing trading and how the best investment apps for beginners can be your saving grace in winning more trades with less work.
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What Exactly Is Swing Trading Strategy?
First and foremost, what is swing trading?
Swing trading is a stock investment strategy in which a trader seeks to take advantage of “swings” in a stock’s price. It falls between day trading and long-term investing. Swing traders typically execute their trades over the course of a few days – or at most, a few weeks.
While swing traders may earn smaller returns per trade than long-term investors, these quick wins stack up over time and can outweigh the returns long-term investors earn.
You’re also able to get in and out of the market with proper timing to avoid big drops. And, because you only execute a few swing trades per week – you don’t get stuck in front of the screen as much as you do with day trading.
Swing trading is less time-consuming, less risky, and maximizes profit potential as compared to day trading or long-term investing. As such, it is one of the most common trading strategies in the investment world today. Let’s give you the basics behind any swing trading strategy.
Comparison With Day Trading and Long Term Investing
The strategy swing traders use varies greatly from long-term investors who look to attain large chunks of profit per trade. The strategy also differs from day traders who get in and out of their trades on the same day.
Because a swing trade is executed over the course of a few days, you can take smaller profit margins – between 5-10%. You’ll execute more trades over the course of a year than a long-term investor, so these smaller wins add up in the big picture.
Because your profit margins are smaller, it’s important to minimize the losses. Too many losses will quickly whittle away your profit over the course of a month. The good news is that swing trading isn’t a risky approach to investing. If you follow our advice below, you’ll minimize losses and enjoy a lucrative career as a swing trader.
You can learn more about this in our comparison of day trading vs swing trading or building a stock portfolio for retirement. Otherwise, let’s look at the pros and cons of swing trading below.
The Benefits of Swing Trading Strategies
There’s quite a few a reasons this is one of the most popular investment strategies for those seeking supplemental income and long-term capital appreciation:
- Optimal Time Efficiency: Swing trading strikes a balance between the rapid-fire nature of day trading and the slow-paced approach of long-term investing. By holding positions for several days to a few weeks, swing traders can make thoughtful decisions without the constant screen time required by day trading.
- Enhanced Profit Potential: While individual profits per trade might be smaller compared to long-term investments, the frequency of trades allows these smaller gains to accumulate, potentially leading to substantial overall returns.
- Reduced Market Exposure: Swing traders aren’t as exposed to the overnight risks that affect day traders, nor do they face the long-term uncertainties that long-term investors do. This limited exposure helps in managing risk, especially during volatile market periods.
- Flexibility in Market Conditions: Swing trading is adaptable to both bullish and bearish market conditions. Traders can capitalize on ‘swings’ or price fluctuations within these broader trends by going long or short, thus not being strictly dependent on market upswings.
- Strategic Risk Management: By using stop-loss orders and setting clear profit targets, swing traders can effectively manage risk, ensuring that losses are minimized and gains are preserved.
Drawbacks to Consider
Any strategy has its downsides and risks, and swing trading strategy is no exception. Here are a few things to be aware of:
- Requires Active Management: Unlike long-term investments that can be more ‘set and forget,’ swing trading requires consistent monitoring and analysis to time the market correctly. This can be time-consuming and demands a higher level of engagement.
- Increased Transaction Costs: Frequent trading associated with swing trading strategies can lead to higher transaction costs, including commissions and fees. These costs can accumulate quickly and reduce overall profitability.
- Market Timing Challenges: Swing trading relies heavily on the ability to accurately predict market movements. Incorrect predictions can lead to losses, and the required precision in timing entries and exits adds complexity. Don’t worry – we’ll show you how to time the market today, including how you can automate your entry and exit strategies with the best stock analysis app!
- Emotional Stress: The shorter holding period and the necessity for frequent decision-making in swing trading can heighten emotional stress. Managing these pressures without letting emotions influence trading decisions is crucial but challenging. Again, using the best stock research sites can help remove human error and emotion from your decision-making process.
- Potential for Overtrading: With the allure of capturing profits from short-term market movements, there is a risk of overtrading. This can not only increase exposure but also lead to decision fatigue, where the quality of trading decisions may deteriorate over time.
All in all, swing trading strategy is a powerful approach to investing – one you should try yourself to see if it’s right for you. We’ll cover the basics below before getting in the advanced swing trading strategies you can employ.
Overview of Swing Trading for Beginners: How to Swing Trade Step-by-Step
This quick beginners guide will provide you with an introduction to getting started – but it is not a comprehensive swing traders guide. It is worth investing in a course or program if you want to understand the principles.
With that said, you can execute your first trade today – in complete confidence – with stock prediction software. This eliminates the need to really understand technical analysis – which we’ll talk about more in-depth later on. Let’s begin with a discussion on risk tolerance and goal setting.
Set Your Goals & Determine Your Risk Tolerance
Start by setting realistic goals and determine the risk you can handle. These goals and risk levels should be specific to you – don’t just take other people’s advice. Here are a few stances you can take:
- Conservative (low risk, moderate reward)
- Prudent (moderate risk, medium reward)
- Aggressive (high risk, high reward)
- Speculative (very high risk, very high reward)
Your risk tolerance may change over time – maybe you’re aggressive now but after a few heavy losses, you’ll find yourself investing more conservatively. Or, perhaps you’re very conservative now – but as you start to earn substantial, consistent profits through your trades, your confidence will rise. After these initial wins, you will realize you’re capable of being successful through swing trading. You’ll trust yourself and your investing strategy more, and thus, get more aggressive and take bigger swings.
Your risk tolerance will dictate the types of stocks you buy – and it also dictates the type of swing trading strategies you employ. If you’re a highly speculative trader, you may buy more volatile stocks that a conservative trader wouldn’t touch. Similarly, you wouldn’t waste your time or energy with conservative stocks that yield lower returns. And, a speculative trader will get into stocks earlier than a conservative trader – who may need to see more validation of price swing before they enter their position.
Once you’ve determined the approach you’re going to take to finding stocks and executing trades, it’s time to actually do it.
Set Yourself Up For Success With The Right Stock Prediction Software
Fortunately for you, investing is easier than it has ever been. Through mathematical models, you don’t even have to conduct technical analysis yourself anymore. Why not let a stocks software do all the heavy lifting so you can just pick your swing trading stocks, find your entrance and exit points, and cash out?
That’s exactly what VectorVest does. It’s a simple approach to investing. Unlike any other software out there to date, it can accurately time market upswings and downswings. We take all emotion out of investing and use mathematical models to deliver three metrics for you: Value, Safety, and Timing.
These three metrics consolidate all the best stock indicators you’re familiar with, so you don’t have to stress about the best macd settings or traditional fundamental vs technical analysis.
With just these three metrics, you can make wise investment decisions that pay off. We take things even a step further, though. Based on this VST rating, we can recommend that you either buy, sell, or hold your stock. It couldn’t be any easier.
But, if you want to employ a swing trading strategy where you do all the work, more power to you. You can read up on our guide of the best indicators for swing trading. These indicators will help you build searches and identify potential in specific stocks.
The truth is, though, there’s no need to work harder when you could just let the best stock apps for iPhone or the best stock apps Android do all the heavy lifting for you. Try out our stock trading system today.
Find Your Stocks Through Technical Analysis (Or, Pick Our Top Stocks In VectorVest)
Once you have stock forecasting software, the rest is easy. You can begin finding the best stocks to swing trade. There are so many different ways you can go about this, but they all require learning how to analyze stocks.
Maybe you have a few stocks in mind – you can conduct technical analysis to validate them and find your entry point. If the stock doesn’t have enough momentum behind its price swing and you don’t think the timing is right, set some alerts on it. When the price hits or drops to a certain point, you’ll be alerted and you can take another look.
You can also start to build scanners that will identify potential stocks that fit your criteria. These swing trading scanners will bring in stocks to you on a daily basis so you can conduct technical analysis to find opportunities. You can look for the best aggressive growth stocks or the best stocks to buy for beginners, high volatility stocks, falling stocks to buy, or anything in between.
But, if you took our advice and went with VectorVest, finding your stocks can be as simple as pulling up our prebuilt searches. We have a myriad of pre-existing searches that will uncover potential stocks for you to swing trade with just the click of a button.
A good place to start is with our daily list of the Top VST Stocks. These are stocks that – according to our value, safety, and timing metrics – have the best potential on any given day.
You can also look up individual stocks and assess their value, safety, and timing – among any specific stock indicators you’re interested in. For most investors, though, we recommend keeping things simple. If you trust the VectorVest recommendations, you’ll come out on top more often than not.
Do you have a stock in mind right now? If so, plug it into our free stock analysis tool. We’ll tell you what that stock is really worth, how safe it is, and whether you should buy, sell, or hold it. You’ll also gain detailed breakdowns of the stock – explaining how we arrived at our recommendation. Like we said – trading with VectorVest will transform the strategies you use. Try the best stock picker and see for yourself what a difference it can make.
Set Stop Losses & Take Profit Orders
You don’t have to sit in front of your screen throughout market hours waiting for the perfect time to get into a stock or sell a stock. The beauty of swing trading is the low time commitment required.
You can set your stop loss as soon as you get into a stock. This is to mitigate your risk to a certain point. When a stock drops below a determined price point, you will sell off all or some of your position. That way, you know exactly how much you could lose on a trade.
Similarly, you can set a take-profit order. When your stock’s price rises above a set threshold, you’ll sell all or some of your position to secure that profit. Keeping consistent stop loss/take profit orders will ensure a successful, well-managed trading strategy. If you want a more hands-on approach – and want to be the one to push the button and either sell off your position – you can set alerts for specific prices.
Monitor Your Position Over The Course Of A Few Days & Exit
If your stop-loss or take-profit orders don’t fire, you can manually close your position after a few days depending on your swing trading strategy. Sometimes the price will go stagnant – and because you’re not a long-term investor, you’ll want to get out and move those funds into the next opportunity.
Build Your Portfolio Slowly & Diversify
Once you have begun implementing these strategies to find stocks that fit your investing style, you can slowly add stocks to your portfolio. You’ll want to build your portfolio slowly over time.
You should also remember to diversify your portfolio. While your specific style and strategy may bring up many of the same industries/stock types, putting all your eggs in one basket is a surefire way to feel industry-specific downturns. Over time, you want to build up a diverse portfolio where no single stock takes up more than 10% of your capital.
The Best Swing Trading Strategies: Advanced Methods for Earning More Profits
Now, before we wrap this guide up we want to cover some of the best swing trading strategies for more advanced traders who are looking to push the limits of their potential.
Fibonacci Retracement
This technical analysis tool is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
By plotting Fibonacci levels between the high and low of a price chart, traders can identify potential reversal levels. This is particularly useful in swing trading for setting entry points during pullbacks and determining optimal exit points during recoveries.
Support and Resistance
These are fundamental concepts where prices historically tend to stop and reverse.
Swing traders look for price patterns that oscillate between support and resistance levels, buying near support with stop-loss orders placed just below this point and selling near resistance or setting short positions with stops just above this level.
Recognizing these zones can help traders capitalize on price rebounds or retreats within a larger trend.
Breakout Swing Trading Strategy
Often used in markets that exhibit tight trading ranges or consolidation patterns, this strategy involves entering a trade when the price moves beyond a defined resistance (for buys) or support level (for sells) with increased volume.
This suggests a potential continuation of the trend. Swing traders use breakouts to capture quick movements in price, adjusting stops to lock in profits as the trade progresses. Learn more about trading ranges in our blog.
Breakdown Swing Trading Strategy
This is the bearish counterpart to the breakout strategy. Traders look for prices to break below support levels, which can signal the start of a downward trend.
Short selling on a breakdown can be profitable in bearish market conditions, particularly when coupled with high trading volumes and bearish market news that may fuel the downtrend.
Bollinger Bands
A statistical chart characterizing the prices and volatility over time using a formulaic method without requiring subjective input, unlike other indicators. The bands adjust themselves to current market conditions.
When the market becomes more volatile, the bands widen. Conversely, the bands contract during less volatile periods. Swing traders often use these bands to identify overbought or oversold conditions.
Buying when the price hits the lower band and selling at the upper band can provide opportunities for quick profits.
Trend-catching Strategy
This strategy involves identifying the primary trend and entering trades that align with this direction. It’s based on the principle that securing gains in a major trend is more probable than betting against the trend.
Traders use moving averages, trend lines, and other indicators to confirm the trend before entering trades to ‘catch’ the trend at optimal points.
Fading Trading Strategy
This contrarian strategy involves betting against the prevailing trend in the expectation that the trend will reverse. It is risky and requires precise timing and often relies on identifying potential exhaustion points where a trend might start to lose momentum.
Tools such as the Relative Strength Index (RSI) or other momentum indicators are often used to identify overbought or oversold conditions that may precede a reversal.
Using VectorVest
As we’ve said throughout this guide, using VectorVest simplifies the process of identifying viable trading opportunities by evaluating stocks using a proprietary system that rates stocks for value, safety, and timing. Of all the best swing trading strategies, this is our recommendation.
For swing traders, VectorVest’s tools can highlight current undervalued stocks that have strong upside potential and optimal entry and exit points, thus maximizing the chance for profits on swings in stock prices.
Wrapping Up Our Guide To the Best Swing Trading Strategies For Beginners
We’ve covered the basics around swing trading, and discussed swing trading strategy. We even walked you through how to do swing trading and execute your first trade. So, it’s time to wrap up our guide to swing trading for beginners.
You can learn swing trading more in our blog. We have swing trading tips like how to find stocks to swing trade, how long is a swing trade, how to buy the dip, when to buy stocks, when to sell stocks, investing after retirement, blue chip investing, how to pick a stock, and more.
Swing traders can make their job as simple or as difficult as they like. If you truly enjoy reading through the charts yourself and employing different swing trading strategies, more power to you.
But these days, it can be as easy as pulling up our top searches, vetting them yourself, and identifying your entrance and exit points. We’ll tell you what to buy, when to buy it, and when to sell it. It’s really that simple – all you have to do is trust our process and realize profits. Sounds good? Head over to our site to start your free trial for our stock advisory today.
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