What Is Swing Trading?

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You’ve heard of investing. And you may have heard of day trading. But are you familiar with swing trading?

Swing traders are people who buy and sell financial assets like stocks faster than long-term investors, but slower than day traders. They typically hold their positions for a period of several days to several weeks in an attempt to benefit from price “swings,” or interim highs and lows within a larger trend.

Here are more differences between swing trading, day trading and long-term investing and what you should consider before trying out swing trading.

Swing trading vs. day trading vs. long-term investing

As mentioned above, swing trading is a middle ground between day trading and long-term investing. But conceptually, it has more in common with day trading.

Day traders and swing traders both pursue short-term gains by using technical analysis. The biggest distinction between the two approaches is duration. Day trading, by definition, involves holding positions for less than a full trading day, and sometimes for as little as a few minutes. Swing trading typically involves a multi-day holding period, and sometimes takes place over multiple weeks.

The methodology of swing trading is also slightly different than that of day trading. Swing traders think about long-term trends when selecting positions, and then try to buy and sell at intermediate highs and lows within those trends. Day traders are largely unconcerned with the long-term and instead try to buy and sell based on small intraday market fluctuations.

Due to the difference in holding periods, swing traders typically make fewer trades than day traders, but pursue a higher profit from each trade.

Alternatively, long-term investors pursue gains over a period of years or even decades. They generally use fundamental analysis to estimate a company’s future growth, dividend-paying potential or rebound potential, and they buy and hold that company’s stock until they’re ready to sell.

Holding period

Potential source of returns

Day trading

Minutes or hours.

Intraday market fluctuations.

Swing trading

Days or weeks.

Minor highs and lows within a long-term trend.

Long-term investing

Months or years.

Earnings growth, rebounding of an undervalued asset, or dividend income.

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Should you try swing trading?

If you’re thinking about trying out some swing trades, ask yourself some questions about your financial situation first.

Are you paying your bills? Saving money? Investing some of those savings in a mix of low-cost index funds to prepare for retirement and other financial goals?

Do you have money left over after all of the above — money you can afford to lose?

If your answer to all of these questions is “yes,” then feel free to swing trade to your heart’s content (with the money you can afford to lose).

But if you answered “no” to any of those questions, swing trading is probably not right for you right now. After all, most traders lose money in their first few months of trading, and many never turn a profit.

The S&P 500 index, on the other hand, has had an average annual return of about 10% since 1926. If you’re invested in that index through index funds or ETFs that track it, that return will be the same whether you’re a novice or a master trader.