Have you ever wondered if you can be an active trader and yet hold stocks in your DEMAT account?
If you are wondering how this can be done, the answer is swing trading. In this article, we will understand the concept of swing trading and know the best strategies on how to book maximum profits while you execute swing trades.
Read on to know more and get detailed insight.
What is Swing Trading?
Swing trading is a short- to medium-term investment strategy where traders seek to capture gains from price swings in a stock, commodity, or other financial instrument. This method involves holding positions for several days to weeks, aiming to profit from expected upward or downward market movements.
Unlike day trading, which focuses on daily market fluctuations, swing trading leverages technical analysis and chart patterns to predict potential price changes, allowing traders to benefit from broader market trends and avoid the constant monitoring required for intraday trades.
The holding period for a stock in the case of swing trading is short. Generally, a swing trader holds the stock between a few days to a few weeks. The best time frame for swing trading if you have just started investing is between 6 months to 1 year.
Technical analysis is a crucial tool in this process. It involves analyzing stock charts and using various indicators to determine the optimal points to enter and exit trades. This analysis provides insights into the best times to buy a stock or to go short, aiming to maximize potential profits from market fluctuations.
How to do swing trading?
As a swing trader, you should look out for stocks with high volatility and high volume stocks.
- You should pick a stock that provides good returns in the short run. The fundamentals of the stock should be thoroughly examined before investing. You should have a trading account with a broker.
- A DEMAT account is where you can take the delivery of the stock.
- You can analyze the stock with different indicators such as relative strength indicator (RSI), moving averages (MA), etc. A stop loss and a target price should be placed for the stock in a swing trade. A support level is the lowest point from which the stock price bounces upwards. A resistance level is the point where the stock prices stop going up and start to dip.
How to select stocks for Swing Trading?
There are some rules that one can follow so that the swing trades performed can give you maximum profits and returns.
- Market Sentiment: One piece of advice experienced traders give is that if the stock is going upwards under the current scenario, and if the other parameters remain unchanged, the stock price will continue to rise and can be a good investment opportunity. Following indices and current news will help you find the best-performing stocks.
- Liquidity of stocks: The more liquid the stocks are, the less the risk exposure. A liquid stock is preferred for swing trading. Along with the liquidity of stocks, the performance of stocks is also considered before starting trading. Generally, outperforming stocks are selected for the purpose of swing trading.
- Patterns and trends: A stock that has an erratic movement in the market indices should be avoided. Stable price movements are favorable. A study of historical data will enable you to select stocks that will be less volatile, and you can avoid frenzied selling.
Swing Trading Strategies
Some of the most common strategies are as follows:
- Fibonacci Retracement: During swing trading, the stocks can retrace at different levels before rising up again. The Fibonacci retracement strategies can be used to identify support and resistance levels in such cases.
- Support and Resistance: As a swing investor, patterns are of utmost importance, and it is necessary to trace the support and resistance levels. The stock price moves between these two. The support is the lowest low, and the resistance is the ceiling.
- Channel Trading: This strategy is used when you want to trade within a channel. This trading shows a strong trend line.
- Simple Moving Averages: This strategy uses two lines which are a 10-day and a 20-day average lines. These lines represent the movement of stock. When the 10-day average line crosses the other, it signals an uptrend, and when the 20-day crosses the lower, a sell signal is initiated.
- MACD Crossover: This strategy is also an indicator that signals either a buy or a sell order. It consists of a signal line and a MACD Line. When the two lines cross and MACD is over the signal line, it triggers off a buy signal.
A brief introduction to Swing Trading
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Conclusion
Swing trading is an active yet very slow-paced trading method. One can easily learn all the techniques of analysis and master trading. Once you have a hang of all the tools and strategies, you can switch over to intraday trading.
