Background:
There are five primary styles for trading in financial markets. They are scalping, day trading, swing trading, position trading, and investing. Although the most well known are day trading and investing, swing trading can help you unlock market opportunities, without you having to risk as much as in the former and wait for as long as in the latter.
Therefore, you should learn about it. Here, you can.
What is Swing Trading?
Swing trading is a trading style whereby trades are held for more than a day usually for several days or weeks. It is so named because it is aimed at identifying the direction in which the market is headed, entering a position, and then capturing the most substantial portion of the market move that subsequently results.
Consequently, swing traders usually enter the market when trends are about to break. This enables them to capture significant price movements when new trends are beginning to form.
Why You Should Swing Trade
Of all the available trading styles, why should you swing trade? Well, some specific factors will largely determine your choice. These factors include personality, time, capital, and the particular financial instrument you will be trading. If your personality is a risk-averse type, day trading is not for you. So, you might want to do swing trading instead.
Regarding time, for example, if you love the potential of generating modest returns while not being robbed of the opportunity to continue holding onto your day job, swing trading will be your best bet. The flexibility of the style will ensure that you can continue with your normal life without having to worry about the trades you place.
Your capital and the particular instrument you will be trading are two other factors you should consider before you decide to swing trade. For example, the legal minimum requirement for day trading stocks is $25,000. On the other hand, there is no legal minimum for swing trading. If, however, you will be trading Forex, the capital requirement is more or less the same for both.
Watch The Risks
Swing trading is not without its risks. In fact, in some regards, those risks can make it highly discouraging to adopt. As a swing trader, for example, you will always have to prepare yourself for overnight and weekend risks. Sometimes, the market opens at a gap, and swing trades can be unfortunate victims of a huge difference in price at those times.
Swing trading is highly susceptible to extreme market volatility. This is characteristic of those times when the market doesn’t appear to be following a definite trend. It can be as a result of unexpected economic events. This type of market situations tends to catch swing traders’ open positions off-guard, sometimes, resulting in substantial losses.