What are the Pros and Cons of Swing Trading?

The Advantages And Disadvantages of Swing Trading

Last Updated July 23rd 2021
6 Min Read

Learn more about the pros and cons of swing trading pushing you ahead to know if it is a good idea to actively trade the stock market

There are multiple types of trading strategies used in the stock market with each using distinct approaches and durations. For instance, intraday is a widely used trading style where positions are squared off in the same day, while swing trading adopts a longer timeframe.

What is Swing Trading?

So what exactly is swing trading? This strategy is about holding a stock for more than one trading day and aiming to benefit from an upward or downward movement, for buys and sells respectively, over a longer period. The period that the stock is held can range from two days up to a month or for a few weeks. 

But the underlying approach also is quite different. Intraday trading seeks to benefit from price movements during the course of a single day’s trading session. These can be acting on one part of the complete movement and booking profits without waiting for the overall swing to unravel. Swing trading, instead, has a longer window and allows the trader to monitor a stock’s performance and capitalise on the movement over a few days or even up to a month. 

With the strategy revolving around profiting from one individual swing of a stock’s price, it is different from long-term trading which covers multiple ups and downs. Also, unlike long-term trading that is more based on fundamentals and an analytical approach, swing trading relies on mostly, if not solely, on technical analysis. Swing traders draw heavily from chart analysis that offers insights on the beginning and the end of the swing in a stock’s price. 

Of course, while the essence of swing trading is the short-term exploitation of swings in stock prices, there are variants in its execution. Some swing traders stick to the conventional head and shoulders patterns on a trade chart while others bank on market and fundamental sentiments influencing the stock’s price. 

But, largely, swing trading stands out as a mid-term and moderate trading style firmly entrenched between day and long-term trading. It can be ideal for a beginner trader who may not be ready for the hurly burly of day trading but also wants to be more active and involved than a long-term trader. 

There are a number of effective swing-trading strategies, ranging from a more conservative trend pullbacks trading pattern to support and resistance.

If we were to evaluate it against other trading forms, how does it stack up? We take a look at some of the pros and cons of swing trading for you to form an opinion.  

Check Out: 7 Tips on When to Buy a Stock and When to Sell a Stock

Pros of Swing Trading

Let us take a look at the benefits that makes swing trading worth trying. 

Not as demanding on time

Unlike day trading where there is a lot of pressure and a trader needs to be continuously alert and active, swing trading does not demand constant attention and action and is a lot less hectic. 

This means you do not need to watch the charts for hours and analyse the data every now and then.

Part-timers can do this

Day trading can be a full-time job and anyone with other commitments should not attempt it. As for long-term trading, the demands on your time are quite minimal and may not quite suit an eager trader. Swing trading, however, hits a sweet spot by allowing enthusiastic traders, who cannot devote their full time, to work part-time. 

Involves a lesser number of trades

Compared to day trading, there is a much lesser number of trades performed in swing trading. This is understandable as, unlike intraday traders who are constantly buying and selling to accumulate their returns over multiple trades, swing traders can be more selective and need not punch in a number of trades on a daily basis.

Higher possibilities to make profits

Swing trading offers more time for research and reflection as compared to day trading. Theoretically, this means lesser room for error and higher possibilities to make profits, i.e., if you are consistent. 

Hits the sweet spot for capital vs. returns

Swing trading also hits the right balance between the time-consuming day trading and the longer deployment of capital in the long term.

As a swing trader, it is possible to work with a much less tied up investment and be more flexible than a long-term trader. But it also need not be at the fast pace of action and much less scope for analysis than what a day trader gets to do. 

Broad range of professional trading platforms

Swing traders can avail themselves a wide variety of swing trading platforms like MetaTrader and resources.

Don't Miss: Learn how to Trade the Stock Market in 5 Steps

Cons of Swing Trading

Swing trading has its share of disadvantages too. 

Longer gestation could have risks

Day trading is a quick get in-get out game where positions are not held beyond day end. But in swing trading, the time committed to holding a stock is longer and can expose the trader to uncertainties in the relatively longer trading duration. This means there is the risk of exposure to overnight and weekend price gaps.

Difficult to get timing right

Day trading offers multiple opportunities to pick price movements in a day across multiple stocks. Long-term trading has a longer window for prices to move. But swing traders have to make the most of the lesser opportunities in the medium term they work in. 

Not all stocks qualify for swing trading

It is possible to do swing trading in all stocks but blue chip stocks of established companies that are usually rock steady may not be the best candidates. For instance, Apple may not offer as many swing opportunities as a lesser-established company. 

Not as cheap as long-term trading

Swing trading sure can be cheaper as compared to day trading with regard to overheads like commissions on each trade. But it still requires you to factor in more fee payouts as compared to long-term trading. Also, the investing capital you need is much more than in intraday trading.

Now, this is not a regulatory or rule-based qualification being referred to here. 

Is Swing Trading Right for You?

Swing trading can be a great strategy if you would like to do serious trading but cannot be a full-time trader. 

Always keep your trades separate from your investments. Assess your temperament, availability of time and resources and your goals to evaluate what will be ideal for you. 

Conclusion 

Finally, it all boils down to what type of a trader you would like to be and what suits you best. Whether day, swing or long term or any other, all forms of trading have the inherent potential to make money and, if things do not work as plan, to be risky. Recognise what your financial condition is and decide what method works best for you.

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