What is Swing Trading?

Jun 27, 2021 | What is Swing Trading and can I make Money Swing Trading?

Swing Trading

We get a lot of questions from people who want to learn what swing trading is, and what it’s all about. Today we’ll do a deep dive into the basics of swing trading. What is Swing Trading? How do you find a good swing trade opportunity? What do you need to get started in Swing Trading?


What is Swing Trading?

Swing trading is a style of trading and selling stocks that attempt to capture small to medium-sized gains over a few days or several weeks. Swing traders primarily focus on technical analysis to identify trading opportunities, but they may implore fundamental analysis and macroeconomic trends as well.  

Technical Analysis:

A trading technique which may be implored that evaluates investment opportunities based on recent patterns or trends identified when reviewing a stock’s chart.

       
  • Heavy emphasis on identifying patterns using candlesticks
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  • Looks for opportunities to trade based on recent price movements within the stock
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  • Emphasizes the identification of a proper entry point. This is when a stock hits a certain price (identified through your analysis) that should potentially maximize your opportunities for a profit over the next few weeks.
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  • This type of analysis focuses on factors such as: Recent price movement, Historical stock price, Trading volume, Overbought or oversold levels, and Moving Averages

Fundamental Analysis:

Another trading technique that may be implored focuses on identifying a stock's fair market value.

       
  • Fundamental analysis considers a multitude of factors such as: Current economic factors, Underlying companies’ financial statements, and Industry conditions 

Although these may sound like conflicting strategies, they should be viewed as complementary trading techniques. Using these techniques in tandem may help identify a proper opportunity for a swing trade. Traders may use recent price action, historical trends, current economic news, and trading volume when looking for a swing trading opportunity. 

Weekly Swing Trades

PNRG (Prime Energy)

October 2, 2022

Entry Price:

80.62

Stop Price:

76.85

Target Price:

88.04

Time Frame:

1 Week Hold

Expecting a short-term bump after a recent OPEC+ announcement regarding the a supply constraint to oil. The constraint would result in ~1M less barrels of oil per day, which should cause a price jump. Low RSI and bouncing off our 250 day moving average, both hallmarks of a good swing trade.

DV (Doubleverify)

October 2, 2022

Entry Price:

27.75

Stop Price:

26.75

Target Price:

29.00

Time Frame:

3 Week Hold

Using our moving averages heavily on this swing trade, look for continued strength as we try to notch out a 6-8% gain. Specifically, we are taking advantage of of a recent cross over in the 50 day moving average. Last week closed down, so wait for confirmation of a reversal.

What’s the Difference Between Trading and Long-term Investing?


As previously noted, trading takes a short-term outlook. Traders look to gain profits from short-term term investments. A long-term investor may look to gain profits by holding a stock for many years. Here are some other key differences between trading and investing:

       
  • Long-term Investors tend to disregard any current market volatility 
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  • Volatility is considered part of investing and it does not impact an investor’s long-term assumptions of the underlying business
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  • Long-term Investors prioritize identifying strong businesses they believe will grow in the future
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  • Conversely, a trader may buy shares of a company that might not be suitable for a long-term viable investment
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  • Traders actively look for mispriced stocks in the market
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  • Long-term Investors generally believe that if you run a strong business, your share price will go up over time
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  • Long-term Investors usually prefer a basket of stocks, bonds, mutual funds, and other financial instruments
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  • Since a trader is looking to maximize profits in the short term, they tend to only invest in stocks as they are more likely to see immediate price movement (higher volatility)

Key Factors when Identifying a Swing Trade

We’ve talked about the differences between investing and trading, now let’s take a closer look at some of the key identifiers when considering a swing trade.

Identifiers When Considering a Trade:

1. Pre-Market Movers:
       
  • It's important for a swing trader to start their morning early. You’ll want to get a good sense of what is happening in the pre-market. Try to identify early in your day if you believe this could be a bullish or bearish day in the market. Identify the hot sectors and look to see if there are any trades you can take advantage of.
2. Current Events:
       
  • It’s equally important that swing traders stay up to date on news and current events. This means understanding what is happening in the US economy and abroad. Unexpected news is a common driver for quick changes in a stock’s price. If something happened during the close, you can use that news to make pre-market decisions the following morning. Current events may also include an upcoming press release or even a pending decision on a pharmaceutical drug.
3. Identifying Hot Sectors
       
  • Much like current events, traders need to take a holistic view of the entire market. Even if you aren't looking to trade in a certain sector, it's important to know what industries are performing in the current economic environment.
4. Changes in Trading Volume
       
  • Traders will consistently monitor the trading volume before considering a trade. High volume might mean a quick change in price is imminent. 
5. Moving Averages (MA)
       
  • Moving averages are a great technical indicator based on a stock’s price movement. Moving averages are used to represent where a stock price has previously been and help you get a clear view of the trend.


What are Common Swing Trading Strategies?

Here at the Swing Trading Club, we always preach the importance of having a plan and sticking to it. Now that we’ve discussed some key indicators you can look for when swing trading, we’ll shift our focus to talk about some common strategies for swing trading. Here are just a few:

1. Channel Trading
       
  • Based on identifying strong resistance and support lines. 
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  • These lines may help identify a range that the stock has commonly traded within.
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  • Assume a stock will trade within this range barring any significant changes or volatility. 
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  • If the stock is trading around its support line, that is seen as an opportune time to trade.
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  • Conversely, when trading near its resistance line, (or price it has struggled to surpass), that may be seen as a good time to sell or even short the stock.
2. Moving Average Convergence Divergence (MACD)
       
  • Studying a stock’s recent moving averages can be a great technique to use when swing trading.
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  • MACD is a momentum indicator that is calculated through recent price action in the stock. 
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  • MACD is commonly derived from subtracting the 26-day exponential moving average from the 12-day EMA.
3. Fibonacci Retracements
       
  • This swing trading technique believes that stocks tend to give back a percentage of any recent gains before reversing again. (Profit-taking) 
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  • Retracement levels are then plotted out to form an overview of the chart. 
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  • Great for reversal recognition

There are many different techniques a trader may use. We are not recommending any technique over the other, but merely stressing the importance of having a plan. Try different techniques over time and in different scenarios. Be sure to always keep a journal- you can improve your skills if you simply document your decisions and your rationale when making trades. 


Summary

Unlike long-term investing, swing trading looks to capitalize on gains and minimize losses, all within a  few weeks or months. When swing trading, emphasis is placed on reading a stock’s recent price chart to identify trends that may lead to quick profits. When swing trading, you will also need to stay relevant to current events or any significant movement within a stock’s trading volume. Above all else, always have a plan when swing trading.

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Weekly Review

Market Performance- Week of 09.25.2022

Recent Winners

SBUX (Starbucks)

SBUX (Starbucks)

Entry Price:

85.00

September 11, 2022

Price at High:

89.90

Return for Members:

5.76%

Timeline:

2 Month Hold

Strong momentum over the last few weeks. Watch for a mean reversion, but if moving averages stay consistent look for an early play to open the week.

PNRG (Prime Energy Resources)

PNRG (Prime Energy Resources)

Entry Price:

83.20

September 4, 2022

Price at High:

100.00

Return for Members:

20.19%

Timeline:

3 Week Hold

PNRG had a drawdown to historical levels of support (around the 100 day moving average). Looking to make an entry in the coming days as we also have macro tailwinds with the energy crisis in Europe.

PYPL (Paypal)

PYPL (Paypal)

Entry Price:

87.00

August 28, 2022

Price at High:

103.00

Return for Members:

18.39%

Timeline:

4 Week Hold

Playing off the dip in June, we're starting to see momentum as the 50MA is crossing over the long-term averages. Look to for momentum to continue and an early entry on Monday.

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