What is Swing Trading - Explanation for Beginners
By Stelian Olar, Updated on: Feb 18 2025.
If you want to know:
What is swing trading?
You’re in the right place.
The swing trading strategies are your secret weapon for catching market waves before they crash. Ever wondered how traders make money from short-term price moves?
Swing trading breathes and pulses with every swing in the price. Sometimes prices rally like a rocket; sometimes they crawl like a lazy snail, revealing that whether you trade stocks, forex or cryptocurrencies the price is always moving in a zig-zag pattern.
If you're tired of choosing between long-term investing and swing trading vs day trading, this might be your chance to find a sweet spot. Beyond those massive market bullish and bearish trends lie dozens of hidden trading opportunities and smaller price movements: "swings" of rallies and declines just waiting to be grabbed.
Wondering if the swing trading strategy could be a match to your trading personality?
Stick around and I'll define swing trading for you. These swing trading strategies aren't magic, because in the world of trading, yesterday's winner might be tomorrow's loser, but they do require some serious skill.
Swing Trading Definition for Dummies
Swing trading involves holding a trade over a period of a few days and up to 3 weeks in an attempt to capture short to medium price movements within a trend. Swing traders leverage both technical analysis and fundamental analysis and interpret subtle price action signals across different time frames to capture gains within the duration of the trend.
Unlike day trading, which focuses on minute-by-minute movements, swing trading gives traders more time to evaluate the market. This trading strategy requires understanding market indicators, knowing when to enter and exit trades, and being patient enough to let the trades play out.
Now that we know the swing trading definition let’s see how to swing trade.
See below…
Understanding Swing Trading - How Swing Trades Works
Typically, swing trading entails buying or selling stocks over days or weeks, aiming to profit from short-term price movements rather than holding them for long-term gains. This trading approach allows novice traders to engage in the market without the constant need for daily monitoring, which is ideal for those with limited time.
Swing trading for beginners operate under the principle that prices do not follow a straight path. Instead, prices exhibit a series of highs and lows, presenting opportunities in-between these swing highs and lows for profitable trades.
The primary objective of swing trading is to identify potential trend reversal and retracements using mainly the daily chart – probably the best time frame for swing trading, and the 4-hour chart with the goal to capture substantial portions of anticipated pricing movements.
Swing traders frequently rely on various technical indicators, including moving averages, while other traders focus on the best stocks for swing trading, which are typically those with moderate to high volatility and sufficient liquidity.
Top swing trading books like Swing Trading for Dummies by Omar Bassal can further enhance the swing trading meaning.
Now…
If you’re still unsure about the potential of swing trading strategies, let’s see the pros and cons of swing trading…
Advantages of Swing Trading Strategies
These are the most compelling benefits of swing trading:
- Ideal for those with busy schedules and full-time jobs because it allows traders to participate in the market without needing to be constantly glued to the screen.
- The lower frequency of trades reduces the emotional strain associated with constant trading because swing traders are not under the same pressure as day traders to make quick decisions.
- Potential for bigger profits.
- Lower transaction costs.
- Flexibility in strategies it can be applied to swing trading crypto, swing trading futures, swing trading options etc.
Risks of Swing Trading
These are the cons of swing trading:
- Gap Risk: Swing traders hold positions overnight and sometimes over weekends, exposing them to the risk of price gaps due to news events or market-moving announcements that occur outside of trading hours which may lead to your stop loss being triggered.
- By focusing on short-term price swings, swing traders may miss out on larger, longer-term trends.
- The fear of missing out (FOMO) on potential profits can lead to impulsive decisions and poor risk management.
Swing trading is not complete without using technical indicators.
Below is a list of the best technical indicators for swing trading…
Technical Indicators for Swing Trading
These swing trading indicators can help traders identify the trend direction, potential entry and exit points, overbought and oversold readings, and overall market sentiment. Here are some of the best indicators for swing trading:
Moving Averages
The moving average is the best indicator for swing trading because it smooths out price data to clearly identify the direction of the prevailing trend. This eliminates a lot of the guesswork that plagues most novice traders.
The most common are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA) with the 50, 100, 200-day moving averages being the most popular among swing traders.
The crossovers between short-term and long-term Mas are probably the most common swing trading strategies.
Relative strength index (RSI)
The RSI is also among the best swing trading technical indicators because it can predict potential price reversals from overbought and oversold readings. Typically, an RSI above 70 suggests an asset is overbought, while an RSI below 30 indicates it is oversold.
Bollinger Bands (BB)
When a swing trader has identified a trend in the market, the BB indicator can help to measure the volatility and how much the stock price can potentially move. The Bollinger Bands can also identify whether an asset's price is experiencing significant compression or expansion in its trading range and whether the price is ready for a potential breakout or breakdown.
The BB consist of three lines plotted on a price chart:
- The middle line represents a 20-day simple moving average
- The upper and lower bands are typically two standard deviations away from this central line.
Intraday trading vs swing trading that’s the question we’re going to answer next.
See below…
Swing Trading vs Day Trading
The difference between swing trading and day trading is often blurred, but there is one major distinction namely when the position is closed. With day trading all positions are closed before the market close while swing traders hold positions overnight holding positions for several days or weeks.
Contrary to day traders who seek quick, small profits multiple times within a single day (ranging from 5-10 transactions daily), swing traders aim for substantial price changes to secure a larger profit from one trade as they focus less on the time spent in the market and prioritize exiting when their trade’s momentum decreases.
Day trading often demands higher initial capital due to pattern day trader regulations – PDT rules, typically requiring a $25,000 minimum account balance. However, day trading offers up to 4:1 intraday leverage, while swing trading typically provides 2:1 overnight leverage, impacting potential returns and risk management strategies.
Position Trading vs Swing Trading
Both position trading and swing trading involve holding stocks for a period longer than a day, yet they differ significantly in their approach and objectives. Position traders focus on holding positions for an extended period, often ranging from weeks to months, or even years, making their decisions based on comprehensive fundamental analysis, geopolitical events, central bank monetary policies and macroeconomic trends.
So, what’s the subtle difference between position trading vs swing trading?
While position traders might view a stock's trajectory over years being less concerned with short term price fluctuations, swing traders focus on capturing intermediate price movements within broader market trends.
If you want to become the next Warren Buffet then position trading is for you, but if you think you can pick stocks for swing trading and time the market then you can try to be in and out of the market more frequently.
Scalping vs Swing Trading
The major difference between scalping vs swing trading is again in the holding time for positions. Scalp trading is a quick and intense way of trading by getting in and out of trades in just minutes or even seconds
Scalping all about making tons of small profits by catching tiny price movements.
Sounds exciting, right?
But it also means you need to be super focused and quick on the trigger.
So, scalp trading is super short-term, while swing trading stretches over a longer period.
Are you someone who can handle fast-paced decision-making and wants quick results? Scalping could be perfect.
Can’t decide between swing trading vs scalping?
Mixing together scalping and swing trading can give you the best of both worlds by using scalp trading to take advantage of short term trading opportunities and swing trading to ride longer trends.
Now, let's address the big question:
"Is swing trading profitable?"
Let's dive in.
Is Swing Trading Profitable?
Yes, swing trading is a profitable trading strategy and to demonstrate this let’s look through some swing trading examples. The chart below shows a period where Tesla (TSLA) price followed the standard swing high swing low trading pattern, which defines an uptrend. This was followed by a classic bullish flag pattern, which often signals a continuation of the prevailing trend if the stock breaks above the upper trendline.
In this case:
- The price breaks through the upper resistance level, triggering a possible entry near $362.
- To hide the protective stop loss, traders can place the SL below the flag chart pattern, marked by a key support zone near $327.
- The estimated risk for the trade is $35 per share ($362 - $327).
- The aim is to target at least a 1:2 risk to reward ratio, so any price above $432 ($362 + (2 × $35)).
With this swing trading strategy, an exit signal emerged when the relative strength index RSI reached extreme overbought readings signaling a potential trend reversal. This swing trade generated a profit of $50 per share.
Ready to transform your trading journey?
Your trading potential starts with choosing the best swing trading platform and dedicating yourself to mastering the art of swing trading analysis.
Selecting the best swing trading platform can make a significant difference in your trading journey success. Forex brokers like Pepperstone and FP Markets offer the opportunity to open a demo account providing advanced charting tools, competitive spreads, and comprehensive market analysis capabilities to start trading with no string attached.