The swing trader's handbook: Strategies for swing trading in stocks

What is swing trading in the stock market?

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Stocks swing trading occupies a sweet spot between stock day trading and long-term stock investing. It involves holding stock positions for several days to a few weeks, aiming to profit from 'swings' in stock prices. If you've found yourself intrigued by trading stocks but put off by the intensity of day trading, stocks swing trading might be worth exploring.

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Why do traders swing trade stocks?

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Compared to day traders who buy and sell stocks within the same trading day, stock swing traders hold onto their positions over multiple sessions. This approach works well for traders who can't continuously monitor the stock market throughout the day. It requires less frequent check-ins than day trading but still involves more active management than simply buying and holding stocks long-term.

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One key reason swing trading works is that stocks often move in trends due to price momentum. When a stock's price begins to move in one direction, it tends to continue that way for a certain period. Traders take advantage of these short- to medium-term trends by entering positions when momentum starts and exiting before the trend reverses.

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The main reasons traders choose to swing trade stocks are:

• Less time commitment: Swing trading doesn't demand your full attention all day like day trading does. You can check on your positions a few times a week instead of constantly monitoring the market.
• Capitalising on stock price momentum: By identifying and trading with trends, swing traders can capture price swings driven by momentum, which often last several days to weeks. This gives them the opportunity to profit from these extended moves.
• Potential for bigger profits: Since swing trades last longer, traders can capture larger price swings compared to quick day trades, potentially increasing their profit per trade.
• Lower stress levels: The less intensive monitoring needed for swing trading is generally less stressful than the high-pressure environment of day trading.
• Fits your schedule: Swing trading allows you to manage your positions around other commitments, rather than being glued to the screen all day.‍
• Diversifies your strategies: Swing trading can complement other trading approaches, such as day trading or long-term investing, providing multiple ways to participate in the market.

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What account types are most suited to Stock swing trading?

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When it comes to stock swing trading, the account type you choose can make a big difference. As stock swing trades typically last from a few days to a few weeks, many traders tend to gravitate towards MT5 financial, swap-free, or zero-spread account types.

Let's take a closer look at how Deriv’s different account types stack up for stock swing trading:

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Standard account

• Offers access to a wide range of markets, including stocks
• Can work for stock swing trading, but may not offer the most competitive pricing or features tailored to longer-term stock positions

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Financial account

• Focuses exclusively on financial instruments like stocks
• Provides tighter variable spreads compared to standard accounts
• An ideal choice for traders who want to concentrate solely on the stock market

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Swap-Free account

• Designed for traders who prefer not to pay overnight financing fees when holding stock positions
• Spreads are slightly wider to make up for the lack of swap charges
• Perfect for longer-term stock swing trades or those who want to avoid financing calculations

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Zero-Spread account

• Features no spread costs for stock trades, but includes commission charges instead
• Best suited for high-volume stock swing traders who prioritise transparency in their trading costs

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Key components of Stock swing trading

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Successful stock swing trading relies heavily on technical analysis. You'll want to familiarise yourself with:

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Technical analysis basics

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• Price charts (particularly daily and 4-hour timeframes)
• Support and resistance levels
• Moving averages to identify stock price trends
• Volume indicators to confirm stock price movements

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Entry points

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Good entry points for swing trading stocks often occur when:

• A stock bounces off a support level
• A breakout occurs from a consolidation pattern
• Moving averages cross over
• Trading volume confirms the direction of the stock price movement

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Exit strategies

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Having clear exit points is crucial for swing trading stocks. Consider:

• Taking profits as the stock approaches resistance levels
• Using trailing stop-losses to protect gains as the stock swings higher
• Setting profit targets based on risk-reward ratios for the stock trade
• Exiting when technical indicators suggest the stock's momentum is waning

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Stock swing trading example: Apple (AAPL)

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The Fibonacci Retracement tool is commonly used by stock swing traders to identify key support and resistance levels. Let's look at an example assuming a bullish outlook on Apple (AAPL) stock.

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On the AAPL chart, the Fibonacci Retracement tool shows potential support around $220 (38.2% level) and resistance near the recent highs of $235.

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Based on this, a stock swing trading strategy could be:

• Entry: Buy AAPL around $220 (38.2% Fibonacci support)
• Take-profit: Sell at $235 (0% Fibonacci resistance)
• Stop-loss: Place stop-loss just below $215 (50% Fibonacci support)
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Remember, this is just an example. In practice, it's important to use a combination of technical indicators, market analysis, and other factors when developing a strong swing trading strategy for stocks. The Fibonacci levels can provide useful reference points, but they should not be the sole basis for your trade setup.

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Risk management in swing trading

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Position sizing

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A common beginner's mistake is risking too much on single stock trades. Consider these guidelines:

• Risk no more than 1-2% of your trading capital per trade
• Diversify across several stocks
• Account for the stock's volatility when sizing positions
• Factor in your stop-loss when calculating position size

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Stop-losses

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Stop-losses are non-negotiable in stock swing trading. Place them:

• Below recent support levels for long stock positions
• Above recent resistance for short stock positions
• At a point that invalidates your trading thesis

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Developing your stock swing trading strategy

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Market analysis

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Before placing stock trades:

1. Assess the broader direction of the stock market
2. Check the performance of the stock's sector or industry
3. Review any company-specific news and upcoming earnings dates
4. Confirm that technical indicators align with your stock trading thesis

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Record keeping

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Maintain a trading journal documenting:

• Your entry and exit points for each stock trade
• The reasons behind your decisions to trade those stocks
• What worked well and what didn't in your stock trading approach
• Your emotional state and decision-making during the stock trades

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Common stock swing trading mistakes to avoid

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• Averaging down on losing stock positions
• Ignoring your pre-determined stock trade stop-loss levels
• Trading stocks without a clear plan or strategy
• Overtrading stocks during quiet or range-bound market periods
• Letting winning stock trades turn into losses

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Practice makes progress with a demo trading stocks account

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Stocks swing trading requires patience, discipline, and continuous learning. Focus initially on mastering one or two stock trading strategies rather than trying everything at once. Remember that consistent small wins often lead to better results than seeking dramatic gains.

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Always keep in mind that all stock trading carries risk, and it's essential to never trade with money you can't afford to lose. Open a free demo trading account with Deriv to:

• Test your stocks swing trading strategy without financial risk
• Build confidence in your stock analysis and decision-making
• Develop the emotional discipline needed for successful stock trading
• Fine-tune your position sizing and risk management for stocks