Two popular strategies involved that can be used when trading a range of securities are swing and trend trading. Read on to discover the key differences and factors to consider when choosing a preferred trading approach.
A fundamental trading strategy that involves opening and holding trades for a day or more, swing trading is often thought of as a medium-term approach. Unlike day trading, swing trading doesn't feature the same intense time pressures that are a hallmark of this method. It also doesn't require traders to hold positions for long periods of time, like they would with position trading.
The aim of swing trading is to make a profit from small price movements in both bull and bear markets. These are referred to as swing highs and swing lows, respectively. For this reason, it's possible to speculate on both price directions via financial derivatives.
With swing trading, professional traders carry out technical analysis to determine patterns and identify opportunities to open and close positions.
This trading approach involves identifying uptrends and downtrends via technical indicators to spot the best opportunities for opening positions. Every market experiences trends as well as trend ranges, where prices reverse or pull back.
Those focused on trend trading take into account factors such as economic conditions and other broader aspects that can signify an upcoming change in trend. For this reason, trend trading tends to be a long-term strategy.
Although trends are commonly identified across markets, they're not present all of the time so this approach can’t be relied upon consistently for every security or asset.
Both approaches also have individual strategies that sit within them and can be utilised depending on personal preference and the market that's being traded.
Both strategies can be utilised across a variety of markets, making them accessible approaches for many traders. When considering swing trading vs trend following, it's important to establish the main differences:
Both approaches provide advantages and disadvantages and, as with all trading strategies, involve some level of risk.
One benefit of trend trading is that positions can be kept open for a longer time period, meaning that traders don't face the pressures that short-term trading strategies can bring. For this reason, it's considered a fairly flexible strategy. However, it's still important to monitor any indicators and be aware of current market conditions.
Another advantage is the potential to make larger gains with each position, although it can take a significant amount of time to reap the rewards in some cases.
If a trader lacks time commitment, trend trading can be a good way to make a profit from price movements as it doesn’t require constant monitoring of minor fluctuations.
Although it's often seen as slightly less risky than short-term strategies, trend trading can still result in losses. Exiting a position too early is fairly common due to trends appearing to break, only to then continue on their previous trajectory.
Using purely trend trading can limit the number of securities and markets available to trade. This is because assets don't experience a clear trend 100% of the time. Using trend trading alongside other approaches is considered a good way to maximise opportunities.
Small profits can also be a downside to trend trading, especially if positions are exited well before the end of a trend due to time constraints.
Swing trading can offer opportunities to maximise short-term profits and can sometimes even equate to increased overall profitability when compared to trend trading, especially when frequent trades are executed.
Those who don't wish for their capital to be tied up for long periods can take advantage of the flexibility that swing trading provides. What's more, because this type of trading focuses on lower, shorter-term gains, any losses tend to be minimised, too.
Swing trading offers some similar benefits to those of day trading but without the intense pressure. For this reason, it's seen as a good middle ground between day trading and trend trading.
Predicting market swings can be tricky, even for the more experienced traders. This can result in lower profits or increased losses. Another disadvantage of swing trading is that executing such short-term positions can often mean missing out on longer-term profit opportunities that are possible with trend trading.
Overnight trading risk is always an issue with positions that are held overnight. Swing trading can expose a position to out-of-hours market influences that affect price movements without the ability to implement a stop loss order.
Swing trading also takes more time commitment and dedication than trend trading due to the requirement to monitor market swings.
Both of these strategies offer a slightly less intense approach than day trading but still involve a level of risk. That's why, if you’re considering trading using these strategies, it's important to thoroughly research the market. You should also understand and be able to apply both fundamental and technical analysis when create a trading plan.
Stop loss orders can be implemented to reduce risk, especially with swing trading as it's a shorter-term strategy and affected by tighter time frames.
It's also crucial to assess your level of risk management before opening any position. While using leverage can increase potential profits, it can also magnify any losses.
Overall, the main aspect to consider when comparing trend trading vs swing trading is the trading time frame with which you’re comfortable. If you’re happy to tie up capital for a longer time period, you might wish to utilise trend trading. If, however, your goal is to make smaller, short-term profits without the risks of day trading, swing trading could be a good option.
Another aspect about which to think is the use of more than one strategy. Professional traders usually rely on a combination of approaches to maximise opportunities and increase potential profits.
Both swing trading and trend trading offer approaches that can be used to trade a variety of securities. And it's easy to get started with Tradu.
1. Open your account: If you're ready to get started, sign up for your trading account today.
2. Broaden your knowledge: Discover more about trading, the markets and our platform.
3. Choose a strategy: Decide whether you want to swing or trend trade and create a plan to help to maximise your opportunities.
4. Execute your trade: Our advanced platform is full of real-time updates and features that can help open and close the right positions for you.
5. Trade a range of markets with multiple strategies: Trade across a variety of underlying assets including listed stocks and CFDs on commodities, forex and indices using your broad knowledge of trading strategies and approaches.