Swing trading is an investment technique where the asset is held for anywhere between a day to a few weeks with the idea of making profit from fluctuating prices or ‘swings’. Investors are not interested in intrinsic value of the stock but rather focus on price momentum.
The stock hold time usually lies between the two extreme ends – day trading, where asset is held for a day and trend trading, where asset is held for extreme long duration, to make use of the price movement.
There are lot of factors to be considered for a successful swing trading. Various technical analysis tools are used to identify the price patterns and trends. Large cap stocks perfectly fit the bill due to the fact that their fluctuation level is between the 2 extremes and their prices will move in a single direction for a few days or weeks and then over turn.
Swing trading should be performed when the market is at stalemate – the price of the specific stock gradually goes up for a few days and then comes down again near to its initial value and then this process keeps repeating. This allows the traders to invest in the stock and make profit of fluctuation as the change will be predictable.
Traders should seek an exit as soon as the stock values reach the probable limits. They should not look to wait until channel line is reached in a weaker market. The wait may be only useful if trend is stronger else it is very risky option.
For beginners, it is one the best methods out there due to low risk in initial stages. It also provides a good enough profit to intermediate and advanced level traders.