By Vishweshwar HS, www.showmytrade.com
The stocks usually don’t move in a single straight line either upside or downside; it moves live taking a breath (inhale and exhale). The price tends to moves up, and very short-term traders take profit; as a result, prices move down a bit. Once again, new buyers take the price higher than the previous high. This movement results in a temporary top and bottom range. Taking advantage of such swing high and swing low is Swing Trading style.
Swing trading refers to the style of trading where the trader holds the stock for 3-5 days (or position closed the next day if the swing forms early). The traders make a profit by buying at the swing low and selling at the swing high (long position) or selling at the swing high and then buying back at the swing low (short position). Swing trading is best suited to capture movement – ups and downs of the same stock.
The goal of swing trading is to capture a sudden bust of price movement. The aggressive traders seek out volatile (significant high and low movement) stocks with more profit with increased risk; others may prefer less volatile stocks. In either case, they recognize swing movement using technical analysis for quick gains on both upside and downside movement.
Example of Swing Trade
Mr. Aditya Bought 1000 shares at Rs 550 of UPL on Monday and sold on Thursday at Rs 581. Mr. Aditya gained a profit of Rs 31/- per share and a total profit of Rs 31,000/- excluding brokerage. He captured the upside movement using technical analysis.
In another case, Ms. Amulya sold one lot of Canara Bank (2600 shares a lot) at Rs 200 after the 4th day squared off her position at Rs 189. That making a cool profit of Rs (11 x 2600 = 28,600).
She captured downside movement using future contracts after recognizing swing high to previous swing low.
Swing traders will often look for opportunities on the daily charts and may watch 1-hour or 30-minute charts to find precise entry and stop-loss points.
Merits of Swing Trading
De-Merits of Swing Trading
Swing trading involves taking trades that 3-5 days to profit from an anticipated price move. Swing trading exposes a trader to overnight and weekend risk.
Swing traders can make profits using a technical indicator or price action trading. And, more importantly, using a favorable risk/reward ratio and planning the right stop loss and target.
Swing trading can enhance trading knowledge. With a consistent and minimum profit with calculated risk, traders can evolve in the share market.
Related Articles:
What is Intraday or Day Trading?
What are Buy Today and Sell Tomorrow & Sell Today Buy Tomorrow Trading?
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