What is swing trading and how it works?

Swing trading is a trading technique that traders use to buy and sell stocks whose indicators point to an upward (positive) or downward (negative) trend in the future. Traders make a profit from market swings of a minimum of one day and as long as several weeks. Swing traders buy and sell at the interim lows and highs within a larger overall trend.

How does Swing Trading work?

Swing traders tend to capitalize on the upward and downward “swings” in the price of equity or security. They hope to use small moves within a larger overall trend. Swing traders make a lot of small wins that sum up to significant returns.
For example, usual traders may wait 4 months to earn a 20% profit, whereas swing traders may earn 4% gains weekly which is relatively small and exceed the other trader’s gains in the long run.
Daily charts are analysed by the traders to do swing trading.

Trading Strategies

Swing traders can use the following strategies to look for actionable trading opportunities:

1. Fibonacci retracement

Traders can use a Fibonacci retracement indicator to identify support and resistance levels. Based on this indicator, they can find market reversal opportunities. The Fibonacci retracement levels of 61.8%, 38.2%, and 23.6% are believed to reveal possible reversal levels. A trader might enter a buy trade when the price is in a downward trend and seems to find support at the 61.8% retracement level from its previous high.

2. T-line trading

Traders use the T-line on a chart to make a decision on the best time to enter or exit a trade. When the security closes above the T-line, it is an indication that the price will continue to rise. When the security closes below the T-line, it is an indication that the price will continue to fall.

3. Japanese candlesticks

Most traders prefer using the Japanese candlestick charts since they are easier to understand and interpret. Traders use specific candlestick patterns to identify trading opportunities.