What is swing trading?

Swing Trading Definition - Swing trading means the short-term trading some traders prefer, where they try to take advantage of short-term price fluctuations rather than holding an asset for long periods. It usually involves buying a security and then selling it a few days or weeks later at a higher price.

In a short-term trade, you will buy a security that you think is going to appreciate and then sell it when the price has gone up.

Swing trading vs Day trading

Day trading is the process of buying and selling securities within the same day.

This type of trading usually occurs on the stock market, and investors attempt to make a profit by buying low and selling high.

By trading stocks this way, an investor can make a substantial profit if he or she executes the trade correctly.

Day trading is considered to be extremely risky because of the short amount of time that elapses between a purchase and a sale.

Even small price changes in the market can result in major losses if an investor sells out at the wrong time. Moreover, it isn't easy to find enough time to carefully research each investment decision during the day.

Unlike day trading, swing trading refers to trading in stocks that have a wider range of prices. There is usually at least one day between the buying and selling of securities, to provide a buffer. Swings are generally wider in price swings, so the trader does not need to be as exact as with day trading.

Swing traders usually have a portfolio of many stocks that they watch for short-term trends and trade on those trends.

Many people who want to trade stocks prefer swing trading because of its low commitment and limited risk. Swing traders buy stocks to sell them later when the market has moved higher. Swing traders know their stop-loss point and they take profits regularly.

The idea behind swing trading is to trade when the momentum is with you and exit when it goes against you. If a stock hits your predetermined exit point, then sell. In other words, follow the trend.

Swing traders will often define a pullback as a signal to sell, in order to take profits. Swing traders are more aggressive, so if a stock drops sharply, it is typically bought back.

If the pullback is not extended, then this could be an opportunity to re-enter the market. Day traders on the other hand tend to define pullbacks as a signal to buy back their shares.