Strategize your trading moves: become a swing trader

By Angel Broking | Published on 7th April 2021 | 170

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When we talk about running, would you categorize yourself as a marathon runner or a hundred meter sprint person? Or maybe you lie somewhere around the middle, maybe 10 kms.

When we talk about trading stocks, it can be said about swing trading that it is equivalent to a middle-distance(like 10kms) race. Day traders being the sprinters in the active world of trading. They hold positions for less than one day and practice trading of the short-term. Trend traders (or the marathoners) employ more of the long-term trading strategy to hold  positions for a significant and larger time frame.

Also sometimes called momentum trading, swing trading, positions of trading accounts typically last for 2-6 days, but can also last for upto two weeks. Capturing bigger gains within an identified overall trend is the aim of this trading strategy. Swing traders have the goal of achieving gains with trading accounts which will be bigger than what could have been earned through day trading.

Learning all the basics

Swing traders utilise technical analysis many times to gain advantage from the current trend of a security. By identifying the trend direction and strength, traders can improve trades. One of common technical analysis forms that swing traders use is chart patterns. Most of them work with the prime trend from the chart. Swing traders “go long” to buy shares, futures contracts or options of a security, if it is on the upward trend.

What if a security trends downward?

A swing trader can short future contracts(selling shares/contracts loaned via a broker while having the intent to purchase them back in lesser cost in future), shares or buy the put options (kind of investment whereby the owner is free to sell at a specified price on predetermined date , but is not liable to do it).

Neither a bearish or  bullish trend is seen to be present at times. Instead, security moves in something called a support area and parallel resistance. In case the stock market rises and then comes back, the topmost point before the action of retreat is called the resistance. The lowest point before initiation of the climb becomes the support, once that the market begins to rise again. swing traders have opportunities in such non-bedar or bull cases too. They have the option of taking long positions near support areas along with short positions near resistance areas.

Coaching strategies ensuring good form

A bull or the bear (or any other investing spirit animal), you could use swing trading for your investment. But since this strategy involves analysis going beyond the usual research carried on different securities, it is not possible to simply lace up the shoes to head out. Instead, specific strategies for swing trading could improve chances of success and profit.

Bull Strategy

  • Playing the uptrend.

Trending stocks usually move like a pair of stairs. When several zigzag patterns take place continuously, the stock shows an uptrend. Bullish traders could watch out for initial upward movement followed by pullback or reversal(counter trend). upward movement should be resumed after this.

  • Capturing gains at the upside.

Swing traders could make a trade after the stock is visibly on the rise again by isolation of the move for counter trend. Starting line can be the price paid to purchase an investment from where the point for the pullback or swing low or stop out point needs to be found. Next, the point of the recent uptrend(highest) is the profit target.

  • Know the steps to enter trade.

Traders who purchase stocks can enter trades using an order of buy-stop limit. Once a call option or stock position gets open, this order can be used to sell the moment it hits the profit taking price or stop loss price.

Bear strategies

  • Capture downside gains.

Bears use tactics(retracements or rallies) applied by bulls in an uptrend taking advantage from a downtrend. Downtrends also move with a zigzag fashion but not orderly like an uptrend. Just like bull investing, entering a trade should be considered after evaluating the potential risk and reward. Here, stop out or swing high becomes the highest price for the recent counter trend.

  • Know the steps to enter trade.

Submitting a trade with an order of sell-stop limit or buying an option of in-the-money put using the contingent order for purchase of the put once stock price has hit entry price.

If you have trading on your mind, a reliable option is Angel Broking which offers a safe, seamless, online share trading platform with experience of over two decades.