What is Swing Trading?
Swing trading is somewhat similar to day trading, when traders are looking to make a profit on a relatively quick buy and sell cycle. The main difference between the two is the swing trading is generally done over a longer time period than day trading. Day trades can be hours, even minutes or seconds away from each other, where and swing trading usually covers something in the realm of days and weeks.
Some of the tactics used in day trading are not available when it comes to swing trading. You cannot find the difference between the bid and ask price to squeeze out a profit. The swing trader is more interested in the trend of a stock price over their allocated time period. In order to make a profit in the practice of swing trading, the investor must realize what type of market exists and to some extent be able to foresee what the market trend will be into the short-term future. If the market continues to be bullish, then the buy and hold strategy would actually outperform the swing trading strategy in most cases. If the swing trader is buying up stock and selling a week or two down the road, then they may miss out on price gains in between the time when they have sold and when they next buy the stock. Obviously in a bear market almost no-one does well and the swing trader would be no exception.
The best environment for swing trading is one where the market is showing some stability over time. If the index is to remain at about the same rate or gradually climbing, this allows the swing trader to get in on the regular up and down movement of certain stocks without getting stuck for the ride on a long term trend that affects and entire sector. Everybody has 20/20 hindsight however and it is pretty close to impossible to know what the market is going to do in the future and that makes swing trading a potentially risky endeavor.
This might be an excellent way for traders to become more acquainted with the market. You can still earn a profit by doing this, and the practice will be perfect if you are looking to move closer to day trading later on. Day trading is not advisable for the beginner, and it also requires that you meet certain minimums in order to avoid having your account frozen for being too low in equity to cover margins. The buy and hold strategy is difficult for many investors, and does not hold the same kind of excitement as swing trading would. With swing trading you can sell your stocks in a few days or a few weeks and start to see that profit coming in. This can be an excellent motivator to keep you focused and watching the market.