Swing Trading strategy focuses on making smaller gains within shorter and cutting losses fast. The profit from these strategies has to be smaller.
Basics of Swing Trading Strategies
Instead of targeting 20-25% profit for your stocks, the goal is to profit 5% in tougher markets. The profits that you make might not be life-changing. However, this is where the time factor comes into play.
In the case of swing trading, the traders don’t focus on the gain that develops over weeks or even months. You make small wins throughout the trading period. All returns add up to a big return. If you are happy with 5 – 10% every week, you can gather significant profits.
But you will have to consider the losses, too. Smaller gains will lead to portfolio growth if you are able to keep the losses small. Instead of 7 – 8% loss, you can take losses at a maximum of 3 – 4%. So, you have a 3:1 profit loss ratio. It is a great portfolio management rule to succeed.
Benefits of Swing Trading Strategies
Here are some of the advantages of swing trading strategies:
- Time Commitment Isn’t Too Much: It requires less time commitment than day trading. You can perform the technical analysis during the daily timeframe. Unlike day trading, you just have to spend a few minutes at the end of the day for the analysis.
- Allows Part-Time Trade: Since it doesn’t take much time, you can trade while doing a 9-5 job or a business. This is to ensure that you always have a constant cash flow.
- A Profitable Strategy: If you follow a proper strategy and risk management, it can be profitable. But make sure you implement your strategy consistently.
- Doesn’t Tie Down the Capital for Long: It will not tie down your capital in bad stock for a long time. In case the trade isn’t working, you will suffer a small loss and then you can move over the funds to some other stock.
Drawbacks of Swing Trading Strategies
Regardless of many benefits, swing trading strategies also come with some drawbacks.
- Exposed to Weekend and Overnight Price Gaps: In this case, trades open up overnight and in certain cases, over the weekend. Thus, these trades are open to the weekend or overnight price gaps. These gaps might render your stop losses useless.
- Market Timing can be Difficult: The timing of the market swings can be difficult, even for the most experienced traders.
- Trading Costs Add Up: Swing trading might incur less cost in comparison to day trading but they might add up to a big amount.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.