What Is Swing Trading?

09/09/2014 6:00 am EST

Focus: STRATEGIES

Without pulling any punches, Frank Zorilla of ZorTrades.com outlines the pros and cons of swing trading, the benefits of this trading method, and the right time to use it.

“A style of trading that attempts to capture gains in a stock within one to four days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren’t interested in the fundamental or intrinsic value of stocks, but rather in their price trends and patterns.”—Investopedia.

Holding period Flexible, a well-balanced strategy with solid reward-risk characteristics.

  • Near-term trades are several days to weeks.
  • Intermediate-term trades are three-to-six months.

Pros

  • Strong risk control due to market timing.
  • Flexible enough to take advantage of shorter-term technical trends in both directions.
  • Based on technical analysis, which works because stock picking is based on current price and volume trends

Cons

  • “Active management requires more monitoring and solid stock market timing”—Morpheus Trading.
  • “The objective of swing trading methods remains same since its invention: to capture the trending part of the move and avoid the pullbacks or consolidation or range part of a move. The logic behind it is to find multiple such opportunities so that you can compound your money fast.”—StockBee

Swing trading is a numbers game.

  • You have to do hundreds of trades to make a difference in the overall account, no one trade should make a huge difference in the account.
  • No one trade should be looked at in an isolated manner.
  • The more you risk, the more you stand to make when you are right and vice versa.
  • Taking bigger individual risk means higher account volatility.
  • You will be wrong half the time, period.
  • You need to know what is important within your swing timeframe.
  • At times you won’t do much trading due to the lack of setups the market might be offering.
  • It’s a numbers game.

Contrary to popular belief, I believe swing trading is best suited for IRAs for tax reasons.

By Frank Zorilla of ZorTrades.com

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