What Is Swing Trading? Is It The Best Trading Strategy?

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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.

Stock Traders at Toronto Stock Exchange in 1937Walk Before You Run

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
  • Pros
    * Very passive, minimal work required
  • Cons
    *
    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
  • Pros
    * Designed to achieve big gains from riding strong and steady market trends
  • Cons
    * 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
  • Pros
    * 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
  • Cons
    * Active management requires more monitoring and solid stock market timing

Daytrading

  • Holding period of several minutes to one full day
  • Takes advantage of intraday price and volume momentum in the markets
  • Pros
    * Extremely risk-averse due to no overnight exposure and risk of outside events
    * Like swing trading, is a technical-based trading methodology
  • Cons
    * 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.

Question? Comment? We're All Ears.

    • Hey Peter,

      Thanks for your comment. Indeed, we obviously feel swing trading is the “best fit” strategy for us (for the reasons mentioned above).

      Checked out your site too. Interesting, as I’ve been recently looking more into the Australian markets and educating traders there.

      Cheers,

      Deron

    • Hello,

      First of all, we don’t use MT4, though I imagine it is similar to other technical analysis platforms.

      As for the “best” technical indicator, it is not possible to answer that question without knowing the answer to many variables (such as your trading time horizon for starters).

      All technical analysis indicators can help increase the accuracy of your trading, but the key is how they are used together as part of a system. More importantly, it is crucial to learn and master the signals from those indicators, rather than jumping around from one indicator to another.

      For us, we focus primarily on price, volume, trendlines, and moving averages (20, 50, and 200-day MAs). Keeping it simple makes it much easier to spot key support and resistance levels on various timeframes.

      Hope that helps.

      • Hi…thanks for the reply..I trade using 1 hour chart and i usually are scalping..so in your opinion what is the most suitable indicator for me?

      • Well, for a simple but effective strategy, consider using the 10, 20, and 50-period moving averages on the hourly chart. When there is a crossover of the faster moving averages up through the slower moving averages, and all three moving averages are sloping higher, that is a basic buy signal. Then, you can tune your entry based on breakouts above consolidation. Our article on the chart patterns for the best stock breakouts could help you with that part.

        Again, it is impossible to explain a trading system in the space of a comment here, but that will get you started. If you really want to learn how to swing trade effectively, I suggest checking out our complete online stock trading course for swing traders.

        Good trading to you!

  1. Do you backtest strategies before launching them and if so, how exactly do you do this – what software and how do you set it up, where does the data come from, what skills are needed, how long does this phase take?

    • Hello,

      We do not backtest strategies in an automated sense. However, our stock trading techniques are based on more than 10 years of experience (we started honing our trading strategy back in 2001). As time progresses, we simply make adjustments and tweaks to help improve the effectiveness of the system.

      If you are looking for backtesting software, I recommend TradeStation because I know a lot of traders are happy with the backtesting capabilities of their software.

      Thanks for dropping by our site.

    • Hello JNorris,

      We do not use oscillators in our trading, as our methodology is kept simple by focusing on price, volume, and support/resistance levels. Of course, we also focus on key chart patterns such as valid bases that are poised to breakout.

      Even though we do not use oscillators, you can determine when to sell into strength when you have profits that are 2-3x your initial risk (reward-risk ratio). Also, if you have a higher batting average (50-60%), then you can sell when you are up 2x what you risked.

      Hope that helps.

      Deron