Day Trading vs. Swing Trading - CFD Trading Strategy (2024)

Swing trading is typically designed for short or medium-term trading strategies. It takes advantage of the changes in the price of the underlying asset. Typically, you hold a position for a few days before selling it at a profitable price. The name of this trading method is taken from the ‘swing’ of the asset’s price, particularly from one value to another. So what are CFDs? How can you use swing trading on it?

What is Swing Trading

Swing trading is a CFD trading method in which a trader takes a closer look at the market to capture the most efficient, short-term profit, despite the narrow timeframes. It is very important for swing traders to carefully analyze the price charts and other vital data to determine the price movement of the underlying asset’s value. More importantly, traders aim to determine the possible price movement of the asset before finally entering a trading position. This way, you get to capture any possible profit which came from the respective move you made.

Traders utilizing the swing trading method must be utterly familiar with technical analysis as these techniques serve as your guiding principles when making a decision. Additionally, they should also have a good understanding of the characteristics of fundamental analysis because examining an asset’s fundamentals will significantly support your technical evaluation.

The key to successful swing trading is to keep closer attention to the price movement of several securities. Some traders are choosing to keep their positions open for at least a week due to their trading strategy. There is a slight difference between swing trading and long-term trading. In long-term trading, investors hold up their assets for a couple of years as they are looking to ride their asset’s price, whether it goes up or down. They only cash out when the value of their asset reaches an advanced stage or a mature stage until such time that it rises significantly.

Contract For Difference Trading

A contract for difference (CFD) is a contract between a buyer and a seller in which the buyer agrees to pay the seller the difference between the current value of an item and its worth at the time of the transaction. CFDs enable traders and investors to profit from price movements without owning the underlying assets. The value of a CFD contract is determined solely by the price difference between the transaction entry and exit.

The margin on Swing Trading

When utilizing swing trading on a trading platform, you may need to trade on margin, referred to as leverage. When you trade on margin, you are only required to pay a deposit to take advantage of the full amount of the underlying asset, giving you additional market exposure. There will be varying margin requirements based on the asset you want to trade. It can start with as small as 3.3%. But take note, if you plan to keep your positions open throughout the night when on margin position, you will also have to pay for the holding costs. This also depends on the trade’s direction and the holding rate in each transaction. Understanding what CFDs are and the margin that comes along with them is very important to keep up with your goals.

Technical Indicators Best For Swing Trading

Relative Strength Index – This popular momentum oscillator is utilized to point out the market’s future direction in CFD trading.

A simple Moving Average (SMA) is a popular indicator to identify trends. It can be customized on different time horizons.

Moving Average Convergence Divergence (MACD) – it is used to decipher bullish or bearish trends.

When utilizing swing trading on a trading platform, you may need to trade on margin, referred to as leverage. When you trade on margin, you are only required to pay a deposit to take advantage of the total amount of the underlying asset, giving you additional market exposure. There will be varying margin requirements based on the asset you want to trade. It can start with as small as 3.3%. But take note, if you plan to keep your positions open throughout the night when on margin position, you will also have to pay for the holding costs. This also depends on the direction of the trade as well as the holding rate in each transaction. Understanding what CFDs are and the margin that comes along with it is very important to keep up with your goals.

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