Stock Market

What is Swing Trading & its Strategies?

Created on 22 Nov 2021

Wraps up in 7 Min

Read by 5.7k people

Updated on 11 Sep 2022

“Paisa, paise ko kheechta hai.” Well, it doesn’t do that sitting duck in an account either. Well ok, the account thing may be incorrect but there is no significance in said growth. With the passage of time, money loses its purchasing power, i.e., its value decreases. This is where investment comes in.
The point of investment, irrespective of the instrument, is to grow the initial money spent at a rate faster than the speed at which money loses its value.

The time preferred to see the money grow, however, differs from investor to investor. While some hop aboard “investment express” for the long haul, many looking to turn a quick buck, trade for periods as short as under a day or up to a few months.
The intent behind these investments is not to gain an earning in the form of dividends, but rather to employ a change in price as the source of returns.
Now you might wonder what is up with this ‘day, week or month’ thing. To unpeel its skin today we will learn what Swing trading is.

What is Swing Trading?

Swing Trading is a technique of trading where an investor invests a sum of amount in stocks or any other financial instruments for a short period which is usually longer than a day to a week to maybe a month. It completely depends on realizing the desired profits. A swing trader finds it best to trade when the market is going nowhere which means for some days indexes rise and for some days it falls. This price movement gives the trader many small opportunities to earn profit even when the stocks are roughly at the same place as the original levels.

These investors are exposed to price risk as sometimes in a short duration there is higher volatility in the stock market. On one day the market may be touching new price lows while on the other day it will be breaking records of making new highs in the market. Investors need to find a risk/reward ratio to take advantage of this volatility and price gap of the market.

While a swing trader can profit from a variety of assets, large-cap equities have the greatest prospects. These stocks will frequently fluctuate between widely defined high and low points in an active market.  The swing trader may ride the wave in one way for a few days or weeks before switching to the opposing side of the trade when the stock reverses course. Swing trade is also possible in actively traded commodities and currency markets.

To be able to practically apply a technique, you need to know what happens backstage and then go ahead and jazz your way through the mainstage. So, let’s take a look at how it actually works?

How does it work?

Usually, these traders will hold their positions either for longer or shorter-term and will be more than one trading session. Here, the longer-term will consist of either a few weeks or several months. 

Investors under this trading strategy usually prefer to invest in stocks in which they are expecting that there will be price movements. They analyze the stocks where they could expect some movements, then they find entry positions and then wait to exit with the huge chunk of profits.

Dan Zanger, called the father of swing trading, holds a world record for stock market portfolio appreciation which gained over 29,000%. In under two years, he turned $10,775 into $18 million.

This little introduction might have jumbled up your head that “Oh I thought this was day trading”. Well, no. Let’s scrutinize the difference between the two. 

The secret ingredient of the recipe
This will be short. The not-to-mention point about any type of trading is choosing the right stocks. In Swing Trading, the best contenders are the large-cap stocks that are actively traded on major stock exchanges. These stocks will oscillate between broadly defined high and low day-extremes. 

Swing trading vs day trading

On the basis of the Holding-time period
One of the major differences between swing trading and day trading is the holding time period of their positions. The swing traders will hold their positions at least till overnight and may even extend it to a few weeks or months depending on the conditions prevailing in the market. While on the other hand, day traders golf their positions for one trading session only. 
In short, day trading is limited to one day while swing trading is for overnight to a few weeks. 

On the basis of Volatility
As the swing traders hold for a longer period of time compared to day trading, they have to face the risk of volatility while that is not the story in the case of day trading. Because of this swing traders may have to face huge price gaps in the stock market. 

On the basis of Percentage of margin
While swing traders are allowed to have access to margin or leverage of 50%. But day traders are allowed to have access to only a 25% margin. So day traders have to put in a larger amount of capital to take the same amount of positions in the market. 

With that out of the way, let's discuss how the Pros do it and what strategies they implement. 

95% of  Indian traders lose money in the stock market.

Strategies involved in swing trading

As these traders focus on more than one day, they most of the time look for multi-day chart formations. Moving average crossovers, cup-and-handle patterns, head and shoulders patterns, flags, and triangles are some of the most popular patterns. To create a good trading plan, key reversal candlesticks can be utilized in conjunction with other indicators.

Let’s look at some strategies which can be used by the traders to take advantage of market opportunities 

T-line Trading 
This chart helps the investors to make entry and exit decisions. When the stock price closes above the t-line, it is expected that the market will continue to go up in the coming days. 

Fibonacci Retracement 
This strategy can be used by traders to find out the support and resistance points in the market.
This may help them to find trend reversal opportunities in the stock market and formulate their trading strategies accordingly. 61.8 percent, 38.2 percent, and 23.6 percent Fibonacci retracement levels are seen to be probable reversal levels. When the price is in a downward trend and appears to find support at the 61.8 percent retracement level from its previous high, a trader may enter a buy trade.

Source: Business Insider

Another technique that traders can use is simple moving averages. They can consider 10 days and 20-day SMAs. This will help to remove the noise from the trading pattern charts. As the SMAs move quickly with a shorter duration and cover all movements, this is a good strategy to consider as swing trading is also for a short time period. 

MACD Crossover 
It helps in providing the trend directions and reversals to the swing traders in the stock market. It consists of two moving averages - the MACD line and the Signal line. If the MACD line crosses above the signal line and below the zero line, traders should buy the security.
If the MACD line crosses below the signal line and is above the zero line, The trader should sell the security. Before exiting the trade, a stock swing trader would wait for the two lines to cross again, producing a signal for a trade in the other direction.

With every risk, there comes a reward and when you are playing with stakes so high, it is always best to make an old-fashioned pros and cons list.

Pros of Swing Trading 

This strategy focuses on earning higher profits in a shorter duration of time and then investing the money in another opportunity to again gain some profits. Traders can just rely on technical analysis to easily identify the entry and exit points in the stock market. 

Cons of Swing Trading

Talking about the cons of this type of trading is the risk and volatility. As mentioned as well, this strategy depends usually on the price volatility in the market. Here the trade positions held by the investors are subject to weekly or monthly fluctuations depending on the holding period of the investor. Abrupt market movements against the expected trend can lead to a huge amount of losses for the investors. It may even erode the capital invested by them. These investors sometimes have to miss long-term trends as they are more focused on the shorter-term trends. 


Management schools define art as an existing base of theoretical knowledge differentiated by personal application, customs, and creativity. By this standard, swing trading is an art. Though many tricks and techniques exist as are mentioned above, each investor has to design their own techniques to earn returns in the market as per their expected risk/reward ratio. Every investor needs to devise a strategy that will provide them with a competitive edge over others in the stock market. 

Which of the above mentioned strategies do you use while trading in the stock market? Share with us in the comment section. Also, do share the blog with your fellow traders to make them understand the concepts. :)

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Kanishka Tayal

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Kanishka is a finance enthusiast, currently pursuing her master's in Banking and financial services domain. She loves to doodle in her spare time. She is a keen learner and is willing to pursue her career as a financial analyst.

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