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Oct 20, 2025
What is Swing Trading?
Definition:
Market swings occur as traders and investors continuously act and react to upward and downward trends.
What Is Swing Trading?
Swing trading seeks to generate profits from short- to intermediate-term price movements. Swing traders look for areas of support or resistance. They enter the market when the countertrend ends and the main trend starts again.
Swing traders are different from day traders. Day traders make many trades and close all positions by the end of the day. In contrast, swing traders look for bigger price moves. They hold their positions for longer periods.
KEY TAKEAWAYS
Swing trading targets short- to medium-term price movements over days to weeks.
Technical analysis tools include momentum oscillators. Two examples are the Relative Strength Index and the Moving Average Convergence Divergence (MACD) indicator.
Most swing traders are individual traders, not institutional investors.
Positions are held for a few days to several weeks.
Madelyn Goodnight / Investopedia
Understanding Swing Trading
The fundamental principle of swing trading comes from the fact that markets rarely go straight up or down. Instead, they swing back and forth as they get to where they're going. Along the way, they establish higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend. This is due to market psychology, which creates natural swings as traders and investors continuously act and react.
One key to successful swing trading is using technical analysis. This helps you understand market cycles and patterns. You can then identify turning points in counter-trend moves.
Common tools include moving averages and momentum oscillators. Examples are the Relative Strength Index and the MACD indicator. Support and resistance levels are also formed by price action.
Swing traders look to enter trades at important support and resistance levels. Many wait for a reversal to start before they make a move. They also have well-defined targets for the trade, often seeking to exit just before or just as the move ends. While many swing traders target volatile stocks with wide price fluctuations, others choose stocks with more stable trends.
Swing traders want to enter at reversal points. They usually have clear profit targets. So, it is important to assess each trade's risk/reward ratio.
A trend trader may enter a rising market and hold on while it goes up. In contrast, swing traders must decide in advance where to enter and exit. They place a tight stop-loss order to limit any losses.
Many swing traders would not risk $1 per share on a trade. They want to expect to earn $3 from a win. On the other hand, risking $1 to possibly make $0.75 is not smart. This is true unless your win-loss ratio is very high.
IMPORTANT
Swing trading is between day trading and position trading. Day trading happens quickly, while position trading focuses on fundamentals. Position traders hold their investments for weeks or months.
Swing Trading Strategies
Trend Pullbacks: The trend is your friend, as the saying goes. This is why entering a short-term pullback from a strong trend can be a great swing trading strategy. You do this just as the trend reverses and the main trend starts again.
At the start of a trend, swing traders may enter when the price touches the 8-day moving average. Others might prefer to wait for a bounce off the 20-day moving average.
Support and Resistance Trading: This strategy recognizes critical price levels where an asset has previously met resistance or support. Traders expect prices to keep bouncing off these levels. They set entry and exit points in support and resistance zones.
Breakout Trading: The breakout approach focuses on assets that have stable prices in a tight range. Traders enter the trade when prices go above resistance or below support levels.
Fibonacci Retracement: After a significant price change, traders look for a small pullback. They believe the price will then return to its original direction.
Fibonacci retracement uses the "golden" ratios of 23.6%, 38.2%, 61.8%, and 161.8% to find potential reversal points. Fibonacci levels give better signals when they match with other support or resistance. This includes moving averages or past reversals.
Chart Patterns: Skilled swing traders spot specific chart shapes. These shapes show when trends might change or continue.
They also provide clear entry points. This helps limit risk by showing when a trade has not worked. These include head-and-shoulders formations, double tops and bottoms, and flags and pennants.
FAST FACT
Though not derived from Fibonacci numbers, 50% and 100% are levels that are often considered just as significant.
Example of Swing Trading
An experienced swing trader has been monitoring Apple stock. The stock has been trading sideways, roughly between $185 and $195, while forming a classic bullish cup-and-handle pattern in June and July. The pattern shows a possible breakout. The trader wants to buy if the price goes above the peak from late July.
Before committing to a trade, the trader analyzes other technical factors:
They confirm that the longer-term trend has been bullish since at least May, with the stock rising from below $165 to the current range.
The rectangle shallow pullback after the rally suggests accumulation, with neither buyers nor sellers able to take decisive control.
Volume appears to be relatively stable.
The stock is holding above its major moving averages.
In mid-July, the trader notices a possible breakout, with AAPL pushing decisively above $195 on increased volume. This signal matches their other observations. They decide to buy at $196 and set a stop-loss at about $185, just below the handle's bottom. The stock then rallies more than 15% before consolidating.
The trader sets a profit target between $205 and $210. As expected, AAPL keeps rising through the summer. It has passed the first price target and reached $230 by early September.
Instead of leaving the trade at the first target, they choose to raise their stop-loss. They want to ride the momentum and use the 20-day moving average as a trailing stop.
By mid-September, AAPL begins showing some signs of weakness, pulling back from its peak. This is the first big pullback since the breakout. The stock finds support near $216, shown by the blue line on the chart. When the stock briefly rallies again in early October back toward $230, the trader recognizes certain warning signs:
The rally doesn't make a significant new high above the September peak
Technical indicators like RSI are showing negative divergence
Volume on the rally is lower than during the original advance
When AAPL falls below the $216 support level in mid-October, the trader sells at $215. This gives a gain of $19 per share, or 9.7%.
IMPORTANT
Swing traders often use multiple indicators for confirmation. A trader may choose to buy when a stock is oversold on the RSI. They look for positive divergence with the MACD. The stock should also be near an important support level.
Advantages and Disadvantages of Swing Trading
Pros
Less time pressure than day trading
Maximizes short-term profit potential by capturing the bulk of market swings
Can rely solely on technical analysis, simplifying the process
Avoids pattern day trader restrictions
Cons
Swing trade positions are subject to overnight and weekend market risk
Abrupt reversals can result in substantial losses
Can miss out on longer-term trends in favor of shorter-term moves
Demands more investment of time than long-term investing
The Bottom Line
Swing trading leverages technical analysis and a market's natural ebb and flow to capture profit. Swing traders look for support and resistance zones in a trend or consolidation. They keep their positions for several days or weeks. This helps them capture the full momentum of the trend.
Swing traders find a middle ground. They are different from long-term investors who handle long downturns. They also differ from day traders who chase quick changes.
Swing trading requires both skill and self-control. Traders must stick to their plans instead of giving in to hope, fear, or greed when their positions go against them.
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