Numerous different trading and investing approaches exist. Typically, most investors are active or passive investors. While their names have similarities, their approaches are remarkably different.
Various active trading strategies exist, including day trading, scalping, and swing trading. We’ll discuss swing trading in detail in this blog post.
Swing trading is an incredibly popular strategy many active investors use. Whether you’re trading cryptocurrency or stocks, you can apply the swing trading approach. Like other active investing strategies, swing trading aims to outperform the market by capitalizing on price fluctuations and market movements. However, unlike day trading, swing traders generally work on a longer-term basis, usually between a few weeks or months.
Swing traders are generally more open to overnight risk, unlike their day trading counterparts. Swing traders try to capture a portion of a trend. For instance, swing traders will invest if a stock appreciates. They’ll try to maximize their profits as the stock trends upwards before exiting the position after the stock is close to reaching its maximum potential.
Here are some swing trading parameters to consider. They include:
Swing trading means trading with the trend. Swing traders use numerous technical tools like reverse candlestick patterns, resistance and support zones, chart patterns, etc. Consider using breakout with other parameters to understand the best entry and exit points for trades.
Volume is something swing traders need to consider because it helps them analyze a new trend’s strength. A trend with high volume will naturally be stronger than one with low volume. In addition, the higher volume helps traders understand price action.
Assessing volume is particularly helpful for a breakout strategy. Breakouts generally follow a period of consolidation with low volume. Then, the volume increases exponentially when a breakout happens.
Another crucial parameter swing traders must consider when trading is an asset’s liquidity. Most experts unanimously agree that traders should opt for highly liquid stocks. High liquidity stocks carry a lower risk for traders because the difference between the bid-ask spread is narrow.
Discipline is one of the primary tenets of swing trading. Swing traders must know when to exit a position and do it quickly to prevent losses.
Relative strength is another crucial factor for swing traders to consider. Swing traders generally prefer stocks that are stronger than their competition. Stocks with a higher relative strength help traders identify the strongest and weakest securities or asset classes within a financial market.
Volatility is another crucial factor that traders must consider when swing trading. Measuring and assessing volatility is a significant parameter that helps traders learn more about stock price movements. Swing traders will often use numerous technical analysis tools to measure volatility. These include indicators like Bollinger Bands, Average True Range (ATR), Donchian Channel, etc.
Active investors aim to outperform the market by capitalizing on market movements and price fluctuations. Hence, swing traders should select volatile stocks.
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