What is Swing Trading? How Does it Work?

By  //  March 24, 2021

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Swing trading is a trading strategy that falls somewhere between day trading and long-term investments. With swing trading, the investments are not long-term, but they are also not closed before the end of the trading day. 

The aim of swing trading is to make a profit from swings in the market.


Swing trading exists for a wide range of asset types, including company shares, options, exchange traded funds, futures, forex, and cryptocurrency.

Swing traders typically pick assets for which there is a lot of volume and liquidity, since such assets tend to swing in a way that makes it easier for swing traders to make a profit.

Swing trading vs day trading 

A day trader will close all positions before the trading day is over. No positions are held open over night. A swing trader will often keep positions open much longer than this, sometimes for several weeks.

Day traders typically strive to make a profit from minute changes in market price. Because of this, they tend to open large positions. A 1 cent profit per share is not much if you sell 50 shares, but a substantial amount of money ($500) if you instead sell 50,000 shares. To obtain such large positions, it is common for day traders to utilize leverage or other forms of credit.

Swing traders keep their positions open longer and have time to wait for more substantial changes in the market price. Therefore, they can make substantial profits from smaller positions.

If the profit per share is $10 you only have to sell 50 shares to earn $500. Of course, keeping positions open for long come with more risk, and tying up capital. It is not difficult to see why swing traders tend to open smaller positions than day traders. Also, utilizing leverage or other forms of credit becomes riskier and typically also more costly over time.

Technical analysis 

Technical analysis is popular among both day traders and swing traders. While day traders tend to focus on four-hourly charts and daily charts, swing traders tend to keep their eyes on patterns that emerge over days or weeks.

Some of the most popular technical analysis patterns utilized by swing traders:

■ Shooting stars

■ Moving Average Crossovers

■ Head-and-shoulders

■ Cup-and-handle

■ Flags

■ Triangles

■ Double bottoms

If you are interested in learning more about technical analysis and how it can be applied to swing trading, there are a lot of resources available for free online, including e-books, tutorial sites and YouTube videos.

Many trading platforms offer free tools for technical analysis.

Is swing trading right for me? 

Swing trading isn´t everyone’s cup of tea. For starters, many people do better with day trading, since they can go to bed knowing that they closed all open positions at the end of the trading day. When you engage in swing trading, you keep positions open for longer, and the knowledge of this risk will be there at the back of your mind even when you´re not in front of the trading screen. A

lso, swing trading isn´t the type of long-term investment where it´s okay to have a ”set it and forget it” mindset. A swing trader needs to keep abreast of the situation as long as a position is open in order to identify the right moment to close it.