Stock Swing Trading Explained

Swing trading is a medium-term trading strategy whereby traders seek to profit from upswings and downswings in stock prices. It sounds simple, but finding the right stocks to swing trade, identifying a 'swinging' stock and choosing the right strategy isn't for the faint-hearted.

To learn all about how you can swing trade stocks, read on.

What are swing trading stocks?

Swing trading is a type of trading style where traders strive to profit from short-to-medium-term price movements of an asset. These price movements typically occur over several days, allowing traders to hold positions longer than day traders.

Swing traders aim to capture these swings over days or weeks, balancing risk and reward in dynamic markets.

Although swing trading covers all sorts of different markets (for example, commodities and forex) we'll focus on swing trading stocks.

Unlike day trading, which involves buying and selling within a single trading day, swing trading focuses on capturing price movements over several days or weeks.

The most actively traded stocks for swing traders are 'large-cap' stocks. Short for 'large capital', these large companies' stocks are usually traded on major exchanges.

These types of stocks habitually experience large price swings, making them the ideal candidates for swing trading. They also tend to have high levels of liquidity, making them easy to buy and sell.

Read our swing trading fundamentals guide

How to find stocks to swing trade?

If you're wondering how to scan and pick stocks for swing trading, the good news is that it's pretty simple.

All that you need to do is to probe the markets to find relatively calm stocks. Although some trading methods benefit from volatility, swing trading is better suited to stocks that gently drift up and down. Although you do need a little bit of action, too much volatility isn't ideal for swing trading due to the amplified risk.

Choosing calm stocks is especially important for novice traders as it helps to manage the risk. Despite this approach, swing trading carries a high risk of losing money, particularly in unpredictable market conditions.

The risk of losing money rapidly increases when trading volatile stocks, even with careful selection.

Swing trading strategies, particularly those involving leveraged products like CFDs, come with a high risk due to potential rapid price fluctuations.

It's important to remember that the golden rule of swing trading stocks is this: to make a living rather than a killing on one trade.

What are the best stocks for swing trading?

The best stocks for swing trading are those that can show steady chart patterns. The stocks that normally have these characteristics are large-cap names with high liquidity.

Based on these principles, some examples of stocks that lend themselves well to swing trading include:

• Meta (formerly Facebook)
• Microsoft
• Apple Inc

What are the best stock swing trading strategies?

Swing trading relies on technical analysis to identify the right entry and exit points for capturing price swings.

Successful swing trading relies on scanning stocks, identifying suitable candidates, and managing trades, so we’ve outlined our top five strategies to guide you.

Swing traders use technical tools, such as chart patterns and indicators, to identify optimal trading opportunities.

Trend trading, a key strategy for swing traders, involves following the direction of a stock’s price movement to capture consistent gains.

Fibonacci retracements

Used to help traders to identify support and resistance levels, the Fibonacci retracement pattern can be used to identify reversal levels on stock charts.

Stocks tend to retract a certain percentage within a trend before heading on their trajectory. By plotting horizontal lines on the Fibonacci ratios (23.6%, 38.2%, and 61.8%), you can visually identify probable reversal levels. If you wanted to swing trade a particular stock, you could go short if a downtrend retraces and bounces off the 61.8 retracement level. Within this, you would exit your position when the price drops below your 23.6% Fibonacci line.

Support and resistance triggers

Support and resistance lines are the foundations for swing trading. Essentially, support and resistance points are historical price points. These historical prices can have an impact on the current and future prices – they can almost be seen as a way of measuring the supply and demand of a certain stock.

It's important to remember that:

• A support point is a low price point that has two higher lows to the left and two to the right.
• A resistance point is a high price point that has two lower highs to the left and two to the right.

Stock swing traders use the support point to spot when to enter a market. The resistance point indicates when traders should sell.

Channel trading

If you've found a stock that's displaying a strong trend within a channel, you might want to try channel trading.

Channel trading can be used to help traders to identify uptrends or downtrends within a stock. Here's how:

1. When a stock is moving between two channel lines, the upper channel line connects the high swings in price while the bottom trend line connects the low swings.

2. If a price breaks out above or below a channel line, this indicates that either a breakout or breakdown is imminent.

3. Where the price bounces off the top line of the channel, this is normally a good time to sell and vice versa.

10- and 20-day SMA

Simple moving averages (SMAs) are another popular stock swing trading strategy. SMAs are used to calculate a constant average price of a stock. For example, a 20-day SMA will add up the daily closing prices for the last 20 days. This is divided by the number of days (in this case 20) and provides an average figure. The same logic is used for 10-day moving averages.

Each average is then connected to the next, which creates a clear trend line.

With this method of stock swing trading, you apply both 10- and 20-SMA lines to your chart. If the shorter SMA crosses the longer SMA (aka the 10-SMA line crosses the 20-SMA line), an upswing is in process. The same principle can be used in reverse to find a downward swing.

MACD crossover

If you're looking for a simple stock swing trading strategy, the MACD crossover might be for you.

As one of the most popular stock swing trading strategies, the MACD crossover consists of two moving averages: the MACD line and the signal line. If the MACD line crosses the signal line, an upwards trend (aka bullish) is in full swing. This indicates that you should BUY a trade.

If the MACD line crosses beneath the signal line, a downward trend (aka bearish) is occurring. If this is the case, traders should look to SELL a trade.

If you're swing trading stock, once you've entered your position, you should wait for the lines to cross again to exit your position.

Start stock swing trading with Tradu

Now that you've grasped how swing trading works and learned more about the best swing trading strategies for stocks, it's time to start trading. Fortunately, you can do so in just a few simple steps:

1. Open your Tradu trading account: Open a trading account with us in a few clicks.

2. Do your research: To help you to get off on the right foot, we've put together plenty of helpful guides for you to read. Head over to our expert hub to learn all about swing trading, other markets and some alternative trading strategies.

3. Decide on your swing trading strategy: Once you've done your research, it's time to choose your strategy. Be sure to pick one that fits your trading personality. Developing a trading plan that outlines your entry, exit, and risk management rules is crucial for consistent results.

4. Start trading: Feeling brave? If you're ready to start swing trading, head over to our sophisticated platform and start executing trades. When opening a trading position, ensure it aligns with your chosen strategy and risk tolerance.

5. Diversify: Why stop there? With Tradu, you can trade thousands of different stocks.

With Tradu you can trade stocks via CFDs or you can invest in listed stocks where you take ownership of the underlying asset. Trading CFDs involves losing money rapidly due to leverage, which can amplify both gains and losses in swing trading.