Swing trading is a type of trading style that involves opening a position and leaving it open for days or weeks so that profits can accumulate. This style is essentially the opposite of day trading, where traders open multiple positions per day and close them before the end of the trading day. Swing trading is seen as one of the most popular trading styles and has unique benefits and a few disadvantages that traders should consider. We’ll start with the positives:
Swing trading does not require your constant attention and allows traders to have a lot more free time than day trading. Once you’ve opened your position, you won’t have to constantly monitor the market. It’s even possible to work a full-time job if you choose this strategy and you aren’t as likely to suffer from burnout as you are with a more time-consuming trading style.
The holding period for trades is longer, meaning that less time is spent searching for trades to enter.
Returns for this type of trading style are usually around 5% – 10%, as long as you are using a good strategy and are fairly knowledgeable about trading.
Swing trading is risky and can lead to large losses if the market goes against you. If your trade is made in the opposite direction and the market opens with gaps up or gaps down, it can lead you to lose a lot, and even stop losses don’t protect against this problem.
Most brokers charge fees for holding positions overnight and this can really get expensive if you have multiple positions open for days or weeks. Triple swaps are another problem, as they are often charged on Wednesdays to account for the upcoming weekend.
You need to invest a lot of time into learning about the market, especially surrounding technical analysis. You’ll need to be able to read charts, use technical indicators, and so on. Of course, you need a good knowledge of the market in general, but this is still worth pointing out.
The Bottom Line
The pros and cons of swing trading seem to even out, although there’s a lot to consider before you take up this trading style. You need to spend a lot of time learning about the market for starters, and you’ll need a good understanding of technical analysis and need to know how to read charts and use indicators. The bright side is that this style can provide good returns and it doesn’t require you to be glued to your computer screen all hours of the day, so burnout from boredom is less likely. On the downside, losses will occur and can be large if the market goes against you. You’ll also need to pay attention to how much your broker charges for holding positions overnight and when/if triple swaps are charged.