Why Swing Trading Is Favourable For Beginner Traders?

April 21, 2017

 

Swing Trading – If you are not trading pro, there’s hope yet. Swing trading for beginners has many distinct advantages so if you are a fledgling in the stock markets, you can still watch your trading profits sore using this interesting technique for trading. There are many obvious and hidden advantages of swing trading. Let’s oscillate from one to the other to unearth why swing trading has the right balance for beginners in the stock market.

Swing Trading: A Boon for Beginners

Swing Trading

  1. Swing Trading Can Be Part Time Too

Swing trading does not have to be a full time job as any person with enough know how and capital can swing it in the markets. On account of the longer time frame for swing trading, trades can be carried out without constant monitoring and regulation. Even if you are not a full time trader, but a novice, this has many advantages for those who cannot spare time to go head on in the markets.

  1. Swing Trading Yields Golden Profits

If there is a silver lining in the cloud, for swing trading, it is the golden opportunities for profits. Trade remains open for days or weeks meaning traders can cash in on higher profits and multiply the same security many times in a day.

  1. Regular Monitoring Not Required All The Time

Swing trading also scores high on other criteria such as setting stop losses in place. Day trading means you have to be watching trading positions all the time. With swing trading, the only risk is a stop being executed at the wrong price.

  1. Swing Trading = Less Stress

Swing trading is not a full time occupation. In fact, you can make profits without spending a lot of time in the markets. This means burnout and stress will be less, if you are a swing trader. You can even have a regular job or different sources of income to undo the impact of trading losses in what can be described as a win-win scenario.

  1. Swing Trading is Simple, Day Trading is Complex

Swing trading can be carried out with traditional trading tools and a single computer. This does not require expensive technology or heavy duty equipment, unlike day trading.

  1. Swing Trading is Popular

This is one of the most common styles used by traders. Many of the swing traders even close out positions after taking an advantage of marketplace momentum. This means that holding on to a position until it pays to let go is the primary basis of swing trading…something which risk averse traders will prize.  While the marketplace can be rewarding, it is also the biggest risk for traders. Reading trends incorrectly can lead to disastrous ends to your epic trading sessions. So, swing trading has the advantage of being easy to monitor and profitable for those who are seeking to capitalize on the markets. Chasing the markets will not get you anywhere, but assessing trends correctly will be perfect for those who want to be on the mark all the time.

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  1. There’s a Strategy to Swing Trading

While traders have winning and losing trades, what is always more important is that gains should outdo losses and traders should not lose more than they can afford to. Comfort with trading style makes it easier to secure profits. Advanced traders can use both types in their range of trading styles. However, beginners would do well to master swing trading first because of the clear cut strategy it involves.

  1. Natural Flow Of Trading Followed

Swing trading allows beginners in the market to make profits on the natural movement of the markets. It is important to remember that markets cannot move in one direction forever. There has to be some momentum and moments of calm in the markets. One can increase returns when the market rises over and stand back when it pulls backwards. This is why swing trading offers sustained advantages even if you are not an ace in the markets.

Laptop and iphone

  1. Market means Opportunity for Swing Traders

Being in and out of the markets, more opportunities can be identified than remaining at one point and looking out. It is also easier to chart changes in the long term and catch the trend in this way. Closing the first position means money will not have to be deposited to cover the second one. Stop losses allow you to take the risk without losing out on the reward.

  1. Clear Boundaries Make Swing Trading Easy

Crystal clear boundaries ensure that you can shatter stock market records if you opt for swing trading. In case you feel that a trade does not work in your favor, damage control is possible. Long term trading means giving a wider berth to the markets while swing trading offers the undeniable advantage of a stop loss.

  1. Fundamental or Technical Analysis? With Swing Trading, It is Both!

Swing trading blends technical and fundamental analysis to catch market momentum and provide options when there is a lull. There is efficient use of capital as well as higher returns and drawbacks involve higher commission and greater volatility. Average retail traders would not have the advantage in swing trading. Though they have greater experience, more leverage, less commissions and detailed information, there are limitations in the instruments of trading they use.

Steps in Swing Trading

For novice traders, swing trading is an important skill to acquire. Here are the steps you need to follow to get to the profits you want to make.

  1. The Opening Bell: Signal for Success

Retail swing traders begin their day much before the opening bell. In fact, the time right before opening is critical for getting an overall feel for the market and creating trades as well as checking up on current positions.

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  1. News and Views

Another task of the day is to catch up with the latest news and information in the markets. Market developments have to be monitored continuously for greater gains. You need to watch out for market and sector sentiments as well as present holdings. Some of the aspects which need to be monitored include keeping an eye on bullish and bearish trends, key economic reports, inflation, currency, international trading sessions and more. News, financial reports and earnings are the hot topic for the day. Using sites such as stock market filings for information will also help traders to turn on the heat in the markets.

  1. Sector Plays: Analyzing Financial Health

Analyzing the news associated with well known financial information sites can create an understanding of which sectors are performing well. For example, the energy sector is budding and the higher the risk, the more the return. Riding trends to the finishing post can be the secret of success in the race for market profits.

  1. Retracing or Reversal? Know The Flip-Sides to Both

Chart breaks offer a massive chance to make profits for swing traders. These are stocks which are heavily traded near a point of support or resistance. From Wolfe Waves to Fibonacci levels, there are many ways to predict how to make or break the markets. A watch list of the stocks can also be created for a day. Stocks that look hot should make it to the list with associated opportunities, entry as well as target prices and stop loss prices.

Money

  1. Check on Existing Positions

To know where to head in the markets, you need to be clear about where you have been. A thorough understanding  of existing positions is a must. Stock symbols can be checked into a news service to see if filings have been made and how this can affect trading plans and opportunities.

  1. Watch the Markets Carefully

Markets are open at certain hours. This is the time to be on the watch, especially if you are swing trading. Head fake bids and asks placed to confuse retail trading can be a real problem. The market maker needs to be checked while making the trade. If your moves are not in tandem with what is happening in the markets, don’t expect to make money. Once traders have made some gains, they then look for the exit point. This can only be done through technical analysis. Adjustments also need to be carried out based on future trading. Entering and exiting trades also requires considerable understanding of how the markets move.

  1. After Hours Market: When It Really Isn’t Over

After hours trading is used for placing trades where the spread is too much to justify. After hours trading is all about performance evaluation. Record trades for tax and performance assessment both. Performance evaluation is an important part of trading. During the after hours, markets are still on though not technically. Paying attention to after hour earnings can impact the level of profits you make.

Follow These Commandments of Swing Trading

If you want to be able to make money in the markets, and this is your initial time trading, swing trading can make all the difference between profits and losses. These golden rules of trading will guide you how to achieve that easily.

Swing Trading Infographic

  1. Align Your Trade with Overall Market Direction

Overall direction of the market needs to be measured by S&P.  When trades and trends are being discussed, make sure primary and intermediate trades are taken care of. The context in which you make the decision is also important. If the focus is only on trade in the short term, you may be missing out on the bigger picture. Profit potential is also limited and longer term trends need to be identified to flow with the flow, not oppose it.  Everything from news announcements to analyst upgrades and downgrades as well as earning hits or misses should always be guided by the larger trend. Long term trends tend to influence the market’s direction.

Trending

  1. Analyze the markets

Once the overall trend is known, the markets should not be fought against. They should be worked with. Go short rather than going on and incorporate price relative to the index within the chart analysis. When it’s bearish, look for stocks going downwards and vice versa.

  1. Trade in harmony with the trend

Keeping a close watch on the trends ensures that trading is not compromised in terms of quality. The trend may be your friend, but are you going the same way? Use moving averages if you want to stay in touch with trends. This does not mean you blindly follow primary trends, as even within the bear market, periods are there when the intermediate trend is positive and stocks rise. Short term traders should also have an idea of the bigger picture.  Understand if the stocks are telling a story and providing some reliable signals regarding future movements. Once the trend has begun, trading becomes more profitable and risk lowers.

  1. Try to enter towards the start of the trade, not when it ends

The quicker you realize a trend has formed, the higher you can go up the profits ladder. Earlier you catch the change in trends, the more effective you will be. Paying attention to the overall market average is important because that which comes up must also go down eventually. There are many ways to assess if the market is prone to reversal such as the Arms Index and the Put/Call Ratio.  Candlesticks as well as momentum indicators like stochastics can serve as alarm bells.

trending graph

  1. Many indicators are better than only one

Trading should not be in technical tool or concept in isolation. From candlesticks to volume and moving averages, the same message reverberates through regarding either the rise or the fall of stocks. Use one indicator to confirm the trend of another.

The Bottomline

In conclusion, clarity is a very important ingredient of an effective trading plan. Without clear cut understanding of trends and points of support and resistance, it is tough to consolidate profits in the market.

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