What Makes for a Swing Trade Investment?


The definition of swing trading has sort of a gray area. Look the term up on a half-dozen respected financial reference sources and you find as many definitions. It's easier to find detailed descriptions of swing trading strategies than it is to find out exactly what the term means. If you are interested in medium-term time frames, making money in the securities markets, and operating as a solo investor from a home office, then you should know the following facts about swing trading.

It's Not for Everyone

Before you learn how to swing trade, realize that it's not for everyone. It won't be your preference if you prefer super-fast price action, daily buying and selling, quick deals, and instant gratification. Medium-term deals, called swings are slower-paced, often last for weeks with no price movement, and sometimes take hours of research up front. Likewise, if you prefer longer timelines, primarily are building a retirement portfolio, and go for months at a time without looking at market news, then you are probably more cut out for long-term strategies that involve blue chip stocks, fundamental analysis, and time horizons that stretch for decades.

The Real Timeframe

So, what is medium-term trading? If there's a consensus definition of what swing trades are, it's that they usually last longer than one business day and less than six months. In reality, the vast majority in this niche get in and out of their positions in time periods between three days and two months. Note that depending on the size of your account, that time horizon could still mean making lots of purchases and sales. It is also ideally set up for anyone who wants to be a part-time investor, spending just a few hours per week reviewing their portfolio and deciding what to keep and what to unload.

There are Risks

The biggest risks you face with swings is overnight and weekend exposure. In other words, your open positions are susceptible to up-gaps and down-gaps on each morning bell, a frequent occurrence. But if you have enough open deals at any given time, the gaps will tend to work for you and against you, thus balancing out their good and bad effects.

The Benefits are Unique

Medium-term position has several unique advantages. For one, they are not subject to day-to-day volatility. When you own a security for two months, for instance, every little upturn and downturn is not a matter for concern. You'll be looking for major price trends that pan out over long periods, which means news headlines, political crises, and other short-term factors don't impact you too much. Another benefit is the chance to take profits when they appear, without having to wait years for a huge price move.

Analysis is King

A key advantage of medium and long-term trading is having the time to do in-depth analysis on each position you take. Some folks who specialize in swings spend many hours looking at technical indicators and poring over fundamental analysis reports of the companies that interest them. That means you're never making uninformed guesses, but applying reliable intelligence to each one of your purchases.

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