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If there is one thing the stock market does almost like clockwork, it is swing. Not only do the prices of different stocks in the market keep fluctuating, but so do the corresponding fortunes of the holders of different positions on said securities. Whilst intra-day trading is a commonly used approach to use the swing of the stock market to trade stocks within a day, some traders tend to prefer swing trades.
Published on 15 March 2023
Swing trading is an approach to trading in stocks that encompasses holding positions for longer than a day to use the short to medium term rise in a stock's price to one's advantage. Swing trades may last anywhere between a few days to a few months and are adopted to benefit from an anticipated upward swing in a stock's price.
Swing traders generally use a combination of technical analysis and their own risk-reward assessment to determine which stocks to choose and when. If you are thinking of entering into a swing trade for a particular stock, it is advisable to engage in a thorough analysis of the price and volume markers of said stock over the past few months and determine your risk-reward matrix.
For instance, if you purchase a stock at a price of ₹79 in a swing trade, anticipating it to grow to ₹84 in the next month, your potential gain is ₹5 per stock. However, you should also determine a stop loss to safely exit the trade with a loss that you are ready to bear. If the price of the aforementioned stock keeps falling and reaches, say ₹77, you may want to get out of the trade. A significant aspect of swing trades is the risk you are ready to bear for an anticipated gain.
Also Read: 3 Important Exit Strategies for Day Traders
Here are some of the advantages and disadvantages of swing trades.
Pros of Swing Trades
|Cons of Swing Trades
|Swing trades need lesser time than day trades;
|There is an enhanced risk of overnight price drops and losses owing to stock positions held beyond a day;
|They can help you capture the short to intermediate gains in a stock's price;
|If a stock's performance is not in alignment with the expectation for a swing trade, there can be significant losses;
|They can be entered into based on technical analysis of a stock's performance.
|Long-term market opportunities tend to be ignored in favour of short to medium-term ones.
If you are looking for the best swing trade stocks, here are a few markers that can help you identify them.
Swing Trading is a highly effective stock market trading strategy, albeit one that requires clarity on your risk-reward appetite, careful selection of stocks, thorough analysis, and a regular watch on the market. While selecting stocks to swing, you should consider various important factors, including liquidity, performance, and volatility.
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