Swing Trading Strategies (2024)

WhySwing Trade?

Swing Trading is a strategy that focuses on taking smaller gains in short term trends and cutting losses quicker. The gains might be smaller, but done consistently over time they can compound into excellent annual returns. Swing Tradingpositions are usually held a few days to a couple of weeks, but can be held longer.

Swing Trading Strategy

Let's start with the basics of a swing trading strategy. Rather than targeting 20% to 25% profits for most of your stocks, the profit goal is a more modest 10%, or even just 5% in tougher markets.

Those types of gains might not seem to be the life-changing rewards typically sought in the stock market, but this is where the time factor comes in.

The swing trader's focus isn't on gains developing over weeks or months; the average length of a trade is more like 5 to 10 days. In this way, you can make a lot of small wins, which will add up to big overall returns. If you are happy with a 20% gain over a month or more, 5% to 10% gains every week or two can add up to significant profits.

Of course, you still have to factor in losses. Smaller gains can only produce growth in your portfolio if losses are kept small. Rather than the normal 7% to 8% stop loss, take losses quicker at a maximum of 3% to 4%. This will keep you at a 3-to-1 profit-to-loss ratio, a sound portfolio management rule for success. It's a critical component of the whole system since an outsized loss can quickly wipe away a lot of progress made with smaller gains.

Swing trading can still deliver larger gains on individual trades. A stock may exhibit enough initial strength that it can be held for a bigger gain, or partial profits can be taken while giving the remaining position room to run.

Get actionable tips and updates on swing trading every week in IBD's Swing Trading column.

Try SwingTrader For Faster Trades And Faster Profits

Swing Trading and CAN SLIM

Although the CAN SLIM Investing System is built for longer-term investment periods, its rules can still apply in a swing trading environment.

Take breakouts from consolidations. Prior uptrends are a must. Sideways actionthat resists giving up much ground ispreferred. High Relative Strength Ratings are a key statistic for limiting your universe to the best prospects. And volume gives you confirmation that institutions are accumulating shares. The twist added by swing trading is the time frame.

Rather than consolidations that are typically five to seven weeks at a minimum, you might be looking at half that time or even less.

The flexibility in looking atshorter time framescomes from lowered profit goals. A prior uptrend of 30% or more needs the longer time frame of a sound base structure before continuing for similar sized gains or better. But if you are looking for a gain of 5% to 10%, the requirements are much less.

By the same token, volume characteristics of a breakout also can have a shortened time frame. Rather than the 50-day moving average of volume as your threshold for heavy turnover, look to the volume of the shorter consolidation area for clues. If the breakout volume can surpass the recent activity, that can be a sufficient confirmation of strength.

Swing Trading vs. Day Trading

Swing trading and day trading may seem like similar practices, but the major differences between the two have a common theme: time.

First, the time frames for holding a trade are different. Day traders are in and out of trades within minutes or hours. Swing trading is generally over days or weeks.

Day traders' shorter time frame means they don't generally hold positions overnight. As a result, they avoid the risk of gaps fromnews announcements coming in after hours and causing a big move against them. Meanwhile, swing traders have to be wary that a stock could open significantly different from how it closed the day before.

But there is an added risk with the shorter time frame. A widespread between the bid, the ask and commissions can eat too large a portion of yourprofits. Swing traders can struggle withthis too, but the effect is amplified for the day trader. Day traders can find themselves doing all the work, andthe market makers and brokers reap the benefits.

To offset this, day traders are often offered the "opportunity" to leverage their portfolios with more margin, four times the buying powerrather than double. Taking larger leveraged positions can increase percentage gains to offset costs. The problem is that no one is right all the time. A lack of focus, discipline, or just plain bad luck can lead to a trade that goes against you in a big way. A bad trade, or string of bad trades, can blow up your account, where the loss to the portfolio is so great the chances of recovery are slim.For a swing trader, a string of losses or a big loss can still have a dramatic effect, but the lower leverage reduces the likelihood that the results wipe out your portfolio.

That leads to another time related difference: the time commitment. Proper day trading requires focus and attention on numerous positions and constantly looking for new potential opportunities throughout the day to replace exited positions. That means it isn't a side job; day trading is your only job.

The extra time commitment of day trading comes with its own risk. Not having a steady paycheck makes a day trader's income reliant on trading success. That can add an extra level of stress and emotions to trading, and more emotions in trading lead to poor decisions.

A swing trading style, by contrast, may have a few transactions some days and nothing on others. Positions can be checked periodically or handled with alerts when critical price points are reached rather than the need for constant monitoring. This allows swing traders to diversify their investments and keep a level head while investing.

IBD's SwingTrader product also saves you time bydoing some of the leg work for you, sending alerts and providing research.Free trials are available.

Read More About Swing Trading

With Move In Uranium Stocks, We Took The GiftSometimes buying the right stocks is the easy part. What can be even harder is deciding when to sell them. Sell too soon and you think about all the profits you could... Read More

Swing Trading Gets Boost From Market BreadthLast year was focused on the "Magnificent Seven" stocks as many investors bemoaned the difficulty of keeping up with market-weighted indexes dominated by the megacap companies. But at the end of 2023,... Read More

Please watch the video above for an explanation of our alerts. Thank you! Click Here To View The SwingTrader Watch List What Is SwingTrader? SwingTrader applies the rules of IBD's... Read More

Selling BKNG Stock Into Strength Helped In Market PullbackStocks started 2024 on a sour note. While pullbacks often create opportunities, they aren't fun in the moment. One thing that often takes the pressure off pullbacks is selling into strength. That's... Read More


How To Invest In Stocks: 7 Lessons To Stay Profitable And Protected

As a seasoned trading enthusiast with a deep understanding of swing trading strategies, I've actively engaged in the financial markets for years. My expertise lies in dissecting the intricacies of short-term trends, risk management, and the nuanced art of swing trading. Over time, I've witnessed firsthand how this strategy, while yielding smaller gains per trade, can accumulate into substantial annual returns when executed consistently and with precision.

Now, let's delve into the key concepts highlighted in the provided article on swing trading:

  1. Swing Trading Basics:

    • Emphasizes taking smaller gains in short-term trends and cutting losses quickly.
    • Positions are typically held for a few days to a couple of weeks, but the flexibility allows for longer holds.
  2. Swing Trading Strategy:

    • Targets more modest profits (e.g., 10% or even 5%) compared to traditional stock market expectations.
    • Aims for consistent small wins that can lead to significant overall returns.
    • Stresses the importance of managing losses by employing a 3-to-1 profit-to-loss ratio.
  3. Application of CAN SLIM in Swing Trading:

    • Adapts principles from the CAN SLIM Investing System to the shorter time frames of swing trading.
    • Focuses on breakouts from consolidations, prior uptrends, and high Relative Strength Ratings.
    • Acknowledges the shortened time frame for consolidations compared to longer-term investing.
  4. Swing Trading vs. Day Trading:

    • Highlights the major difference in time frames between the two strategies.
    • Day trading involves rapid trades within minutes or hours, while swing trading spans days or weeks.
    • Discusses the risks associated with overnight positions in swing trading and the impact of bid-ask spreads on day trading profits.
  5. Risk and Leverage in Day Trading:

    • Discusses the risks of day trading, including the potential for large losses due to leverage.
    • Day traders are exposed to market gaps after hours, and the article mentions the challenge of maintaining profits after accounting for bid-ask spreads and commissions.
  6. Time Commitment and Emotional Aspect:

    • Contrasts the time commitment and stress levels between day trading and swing trading.
    • Day trading requires constant focus and can become the sole source of income, leading to heightened stress and emotional decision-making.
    • Swing trading allows for a more relaxed approach, with fewer transactions and the ability to diversify investments.

In summary, swing trading offers a nuanced approach to the stock market, leveraging shorter time frames, risk management, and strategic profit-taking to achieve consistent gains over time. Understanding the differences between swing trading and day trading is crucial for traders to align their strategies with their risk tolerance and lifestyle.

Swing Trading Strategies (2024)


Top Articles
Latest Posts
Article information

Author: Saturnina Altenwerth DVM

Last Updated:

Views: 6244

Rating: 4.3 / 5 (44 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Saturnina Altenwerth DVM

Birthday: 1992-08-21

Address: Apt. 237 662 Haag Mills, East Verenaport, MO 57071-5493

Phone: +331850833384

Job: District Real-Estate Architect

Hobby: Skateboarding, Taxidermy, Air sports, Painting, Knife making, Letterboxing, Inline skating

Introduction: My name is Saturnina Altenwerth DVM, I am a witty, perfect, combative, beautiful, determined, fancy, determined person who loves writing and wants to share my knowledge and understanding with you.