What Is Swing Trading? Is It The Best Trading Strategy?
Feb 09, 2012
In this article, you will learn what swing trading means, and how it compares to other investing methodologies.
If you already know what swing trading is and are just looking for details on our actual trading strategy, click here.
One of the first steps to establishing a winning trading technique is to determine your preferred trading style (investing timeframe).
Without doing so, it’s impossible to lay down basic ground rules for your trading strategy, such as how long you will seek to hold each stock or ETF position.
If you are just getting started in learning how to trade ETFs and stocks, it’s important to know your choices.
Below, we have summarized the pros and cons of each of the four main trading methodologies and investing strategies (sorted from longest to shortest holding period):
Traditional “Buy and Hold” Investing
- Holding period of several years to decades
- Balanced portfolio of 20 or more stocks
- Based on fundamental analysis
* Very passive, minimal work required
* Limited to no flexibility
* Potentially large drawdowns and long periods of time with no appreciation
* Dependent on market to always move higher, with no consideration of trend
Position Trading (also known as “trend trading” or “core trading”)
- Holding period of 6 months to several years
- Narrow selection of stocks with concentrated positions
* Designed to achieve big gains from riding strong and steady market trends
* Large drawdowns in choppy or indecisive markets
* High volatility in profit and loss (P&L)
Swing Trading (near & intermediate-term) – Our preferred ETF and stock trading strategy
- Holding period
- Near-term trades are several days to weeks
- Intermediate-term trades are 3 to 6 months
- Flexible, well-balanced strategy with solid reward-risk characteristics
* Strong risk control due to market timing (learn more here)
* Flexible enough to take advantage of shorter-term technical trends in both directions
* Based on technical analysis, which works because stock picking is based on current price and volume trends
* Active management requires more monitoring and solid stock market timing
- Holding period of several minutes to one full day
- Takes advantage of intraday price and volume momentum in the markets
* Extremely risk-averse due to no overnight exposure and risk of outside events
* Like swing trading, is a technical-based trading methodology
* Requires very active management, sitting in front of monitor all day
* Physically and mentally demanding (requires solid reflexes)
* Quite time consuming, only suitable for full-time traders
So, what is the best stock trading strategy?
There is no correct answer because your preferred trading technique or investing methodology is a personal decision based primarily on your personal comfort levels with both risk and patience.
Back in the late 1990’s, we began as daytraders, but found it to be too physically and mentally exhausting over the long-term.
As such, we began adjusting our trading system to focus on swing trading in the primarily short-term time frame. This quickly became our best-fit strategy because it gave us the maximum potential for consistent trading profits, while putting our capital at the least amount of risk.
Swing trading (also known as “momentum trading”) is also an ideal trading timeframe for people who can not or will not sit in front of their computer monitor all day, staring at flashing ticker symbols.
In our flagship Wagner Daily ETF and stock trading newsletter (available here for less than $2 per day, based on annual rate), we seek an average holding time of 2 to 5 weeks for each stock pick and ETF trade we enter.
Furthermore, our swing trading system is designed to be completely end-of-day, so even people with daytime jobs may still fully participate in the strategy.