In this article we bring you several pointers on swing trading for beginners, as well as, how you can attempt to close out successful swing trades.
Swing trading as you might already know, requires fair amount of technical expertise. Understanding the tools and their application is important so as to execute a successful swing trade.
The existence of various technical analysis tools, several of them which can be automated make swing trading amenable to even novice traders.
Swing Trading for Beginners – How to Start Swing Trading?
Swing trading seeks to profit from short term movements in price trends of a security.
It therefore looks to forecast future price movements and take trade positions to benefit from such price movements.
A variety of technical analysis tools have been developed and are used for this purpose.
To effectively apply this, a deep understanding as well as practice of their application is desirable.
Without this, swing traders may take incorrect trade positions – buying and selling at unprofitable prices resulting in incurring losses.
We will now walk you through a step-by-step guide of what should be done as well as important factors to be kept in mind before venturing into swing trading.
- Selection of Stocks or Shares
- Be aware of long-term trends
- Allow price trends to guide the type of trade position you take
- Understand technical analysis
- Enter the trend in time
- Pre determine your risk appetite
- Use a simulator app at the beginning
- Maintain discipline
- Have a plan but don’t shy away from tweaking it if required
- Incorporate fundamental analysis
Now, lets have a step by step guide on Swing Trading for Beginners & understand How to Start Swing Trading & Become a Pro.
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Selection of Stocks – 1st Step of Swing Trading for Beginners
Swing trading can be executed across several types of securities. This can include stocks, options, futures, commodities, cryptocurrency etc.
As a swing trader, you should look out for securities that seem to have an identifiable trend in its price movement.
Securities whose price movement seem to be too linear should be avoided and these would not yield adequate profit-making opportunities for swing trading.
Once these are selected, you should create a watchlist so as to track their price trends. This way you will not miss out on a swing trading opportunity when it arises.
Be aware of Long-term Trends – 2nd Step to Start Swing Trading
Although swing trading is short term, it is useful to be apprised with longer duration trend of the market as well. This can maximize your profit potential in a sustained manner.
A very short-term vision may yield profits but, their quantum may be limited and not sustainable.
Follow larger broader indices which give you an overall market trend indication. Correlate their behavior with that of your selected stocks to reaffirm your positions.
Allow Price Trends to guide the type of Trade Position you take
Established price trends can indicate how stocks are likely to move. Follow these trends while positioning your swing trades.
For example, if the price trends indicate a bullish market, you should consider buying a security with the intent of selling it when the market is envisaged to have peaked its bullish phase.
On the other hand, in a bearish market, you should consider short selling a security, this way you can profit when the markets reaches its low.
Understand Technical Analysis – Important Step in Swing Trading for Beginners
Swing trading extensively uses technical analysis tools such as Fibonacci retracement, channel trading, Bollinger bands etc.
In-depth and comprehensive understanding of these tools is necessary to identify sustainable trends.
Amongst these is a crucial technical analysis tool – ‘support and resistance’ levels. Price trends typically follow a pattern.
In rising markets, prices are likely to rise up to a particular level and then begin a downward trajectory.
Likewise, in a falling market, prices tend to fall up to a certain level from where they begin recovering. The ‘high’ of the trend is the resistance level whereas the ‘low’ of the trend is the support level.
Buy signals are generated when the stocks approach the support level and sell signals when the stocks approach the resistance level.
These levels will thus help generate your buy and sell signals hence, charting them and following them is crucial.
Enter the Trend in Time – Important Step to Start Swing Trading
Each cycle in a price trend has a timeline. While identifying the trend is important, entering the trend in a timely manner is also important.
In a bullish market for example, taking a buy position at a price reasonably lower than the resistance level is advisable.
Delaying entry and entering just before the resistance level will yield minimal profits and may even generate losses if the market turns quickly. Timing is everything in swing trading.
Pre-Determine your Risk Appetite – Guide to Swing Trading for Beginners
You should keep in mind that swing trading is susceptible to significant risk especially the ‘overnight risk’.
This means that price forecasts may go array if there are some sudden economy or other changes that affect the stock market. This can disrupt your planning.
This makes it important to define ‘stop loss’ levels for your trades. Technical analysis tools help set these levels. Your acceptable risk threshold should guide this.
This is especially important for a beginner swing trader who may not have enough experience to take quick decisions to cut losses in case your trade does not go as planned.
Use a Simulator App – Important Step in Swing Trading for Beginners
A good way to gauge your preparedness for swing trading is to first use a simulator. There are scores of apps and websites today that create a mock stock market environment and simulate your trades.
This way you can assess your ability to read the market and execute swing trades without any risk. Once you see good results and gain confidence you can step into the real market to make real profits.
Maintain Discipline – Important aspect of How to Start Swing Trading
Swing trading does not require continuous minute by minute monitoring as is required in day trading or scalping.
However, it requires you to update your knowledge of technical analysis tools and apprise yourself of emerging trends.
Maintain discipline so as to follow the generated buy and sell signals. Do not allow your emotions to sway you as this can lead you to taking panic decisions.
Have a Plan, but don’t shy away from Tweaking if Required
Having a pre-determined plan and sticking to it is an important discipline of swing trading. This however does not mean that you should not adjust it if the circumstances warrant.
This can happen in the case of a ‘break-out’. This happens when support and resistance levels are significantly breached and you believe a new price trend is being set.
In this case, you can hold on to your trades and re-set your buy and sell signals to increase your profits.
Fundamental Analysis – Final Step of Swing Trading for Beginners
While the core of swing trading is technical analysis, it would be wise to also carry out fundamental analysis of stocks you venture in.
This can indicate the financial strength of the selected stocks. The conclusions of technical analysis can be vet by the fundamental analysis.
Swing Trading for Beginners – Conclusion
Swing trading involves several techniques and tools. As a swing trader you can use any one of them or a combination of several of them.
It is a practice which will make you a better reader of these technical analysis tools and indicators. The quote ‘practice makes a man perfect’ applies very well to swing trading.
The more knowledge and more experience you gain about the market and how price trends work the better swing trader you can become.
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