Swing Trading

Published: June 30, 2020 by Andrew

If you are looking for an investment method that is suitable even for a beginner, Swing Trading could be a strategy you should take into consideration.

In fact, since it is a slightly “slower” form of trading than the others, but with great profit potential, it is one of the strategies preferred by newbies. Especially if, moreover, you consider that it is much easier to start with Swing Trading than with other technique of trading.

What exactly is Swing Trading?

In this guide we will focus on:

  • What is Swing Trading
  • How you can do it with one of the best trading platforms in the world, (eToro, here the official website)
  • Why instead of doing Swing Trading you could do Copytrading with eToro

Are you ready? Take a few minutes of your time and continue reading!

What is Swing Trading

Swing trading is a form of trading where the trader, during the negotiation, maintains his operations for a period of time from one day to a few weeks. Traders who do swing trading often base their operations on technical analysis, in order to form their trading strategy and, in particular, try to predict when to enter and exit the market.

As already mentioned, although swing trading is not the most advanced form of trading, it is also true that it presupposes some knowledge that those who start from scratch could have some difficulty metabolizing in a short time.

Anyway, no worries! In this focus we will cover the tools you need, why this strategy is so important, how to build a strategy, what are the most practical aspects of swing trading.

Read also: Pivot Point

How much money do you need to di Swing Trading?

Let’s start by answering a very frequent question: how much capital do you need to trade?

Generally, swing trading requires much less capital than other forms of trading: it is perfect for those who want to trade online with small sums. Sometimes you can start with a few hundred euros. However, the amount you will need depends on a couple of factors:

  • The price of the asset you wish to buy
  • Expenses like commissions

First of all, you have to understand that the commissions and expenses that you could incur could quickly affect your profit. In short, if your strategy has an average profit of about 1 euro per share, and you pay a commission of 0.5 euro per share, you won’t have much in your pocket!

Fortunately for you, keeping costs as low as possible is not difficult. Just try to use broker services, such as eToro, which offer trading without any commission.

Read also:Trading for beginners, how to start from scratch

Trading with CFD or Stocks?

As you may have realized by reading the insights we dedicated to this theme, CFD brokers are increasingly present on the web, and not only thanks to advertising campaigns. They are in fact the best opportunities that allow you to trade on the financial markets, without commissions and without expenses!

Of course, it is always worth remembering that when trading CFDs with a broker, you are never buying and selling the underlying. Rather, a contract is being entered into directly with the broker. But what does this mean for your swing trading strategy?

It is quite simple: since it is a non-standardized contract, such as futures contracts, it means that it is the CFD broker to establish the conditions of the contract. In other words, you are at the mercy of the conditions imposed by the CFD broker.

Secondly, you must also take into account that although it is true that brokers do not charge any fees for your trade, this does not mean that they are not remunerated for the services they offer you!

In fact, instead of making you pay a commission on each trade, brokers apply a spread fee. That is, you sell your contract a little below the market price, as well as buy it a little above the market price. The difference between the asking price and the offering price – the spread – goes directly into the pocket of the CFD broker.

This of course does not mean that trading with CFD brokers is not convenient (quite the opposite!). However, it means that you should be careful in selecting the best operator, avoiding running into some unprofessional broker.

Our advice, in order to avoid any misunderstanding, is always to use eToro as a reference broker: it is a free operator, regulated and with the best economic conditions, which you can also experiment by opening a demo account.

Read also: Stock Exchange Forecast, how do you predict the Stock Exchange

The advantages of swing trading

Before going into even more detail in our step by step guide on swing trading, we want to share with you and all our other readers what we believe to be the greatest advantages of swing trading.

Let’s see them briefly, point by point:

  • You can trade as a hobby or in your spare time: swing trading is an excellent form of trading for beginners and for those with limited time. Since most swing trading strategies involve holding positions for a few days, you certainly won’t have to stick to the screen all day! In addition, you can still set stop loss and take profit (super recommended option!) To be able to automate exits from the position
  • You can get consistent returns: generally, the longer you hold an asset in your portfolio, the more space you give it to develop in your direction. This is a very important feature, which reduces the risk of day trading and opens the door to interesting profitability
  • It is less stressful: the fact that you can do swing trading with a not very short-term approach, generally eliminates all the stress typical of ultra speculative day trading. Considering that stress has a negative impact on your trading and makes you more prone to make mistakes, you should reap important benefits
  • You don’t need so much money: anyone with a few hundred euros can start swing trading. In fact, a computer and some free tools offered by brokers are enough to seek success on the financial markets!

The disadvantages of Swing Trading

What about the negative points? Like any trading strategy, of course swing trading also has some disadvantages but, in our opinion, these are small things compared to the benefits.

Let’s see them briefly:

  • It might be difficult to understand at first: although swing trading is the best and easiest form of trading for beginners, there are several things you should understand
  • You could lose your money: as with all types of trading, you could always incur substantial losses with swing trading. Of course, a lot depends on the strength of your strategy
  • You cannot diversify frequently: swing trading is a form of trading with which it is difficult to obtain a broad diversification.

Now that we know a little more, let’s understand what you would need and how to get started!

Read also: Forex hours, what they are and when it is convenient to trade

How Swing Trading works

Of course, the first thing you need to do if you want to start with this type of trading is to choose a platform that allows you to monitor the market and carry out your operations.

There are many free alternatives on the market that will allow you to view graphs and send orders. As you should have already guessed in the previous lines, our suggestion is to rely on eToro, certainly the most effective of the CFD brokers currently available on the market.

The step two that you need to do after opening an account on the broker, is to create a trading strategy.

In short, once your platform is ready and working, and you are testing it with a demo account, you should certainly not start trading right away. You actually need a swing trading strategy, tested on historical data, to make sure that it works or, at least, that it is tested on the market, in the present, through a demo account.

Now, to create a strategy, you will necessarily have to go through several stages:

  • Choose the financial market in which you want to apply your strategy
  • Formulate a trading idea
  • Backtest and train a little with a demo account
  • Review your strategy before applying it on the financial market with your investment capital

Swing Trading Strategies

Now, we want to give you some tips to improve your opportunities to achieve success with this methodology of trading.

The first piece of advice we want to give you is to trade multiple stocks. As with any type of investment or trading, it is indeed good to diversify your portfolio. In trading, it is better to diversify the risks on a greater number of activities, rather than taking only a few positions.

In our experience, a portfolio in which only 3-4 positions are held may become a bit unstable. Instead, it is better to hold 7-10 simultaneous positions if you want more stable returns over time.

Of course, you won’t always have all your capital on the market. On the contrary, you will experience that there will be periods in which you will have no use whatsoever in entering the market. This is a perfectly normal situation, and you shouldn’t rush to take positions because of this!

The second tip we want to give you is to always use a stop loss. It is important to always know your risk when entering an operation. And as such, you should always use a stop loss to limit your potential losses in the event of an unfavorable market trend or other unexpected event.

But how large should the stop loss be?

It is difficult to establish a number or distance that applies to everyone, as everyone has a different risk tolerance. However, as a general rule, you should make sure that you don’t risk more than a few percentage points of your capital on each trade.

Finally, we also recommend that you keep a swing trading diary, a log of your activities and thoughts for each position (why did you enter? How did you set the stop loss?). It is a fundamental trick, as it is difficult to have an overall picture when acting at the level of a single trade.

By documenting your trades instead, you can still go back in time and find out what you should work best to take your trading to a next level.

eToro Copytrading

As we anticipated at the beginning of our guide, swing trading is one of the easiest trading strategies among those you can adopt.

However, as we have also underlined on several occasions in the previous paragraphs, the fact that it is a “simple” strategy does not mean that it is easily adopted by all investors!

If, on the other hand, you want to trade from scratch and, perhaps, taking advantage of the knowledge of others, the best solution is certainly to do copytrading. Do you already know what it is?

In very concise terms, copytrading is a particular way of investing thanks to which you can copy what the best known and most experienced investors are doing. All for free and with risks that you can easily control!

If you want to know more, we remind you that eToro (official website) is the global leader in copytrading. And that we talked about eToro in our exclusive guide (take a look!).

Conclusions

Coming to the end of this focus on an important trading strategy, we hope that our ideas have been useful to you in order to improve your knowledge with swing trading and, above all, with more aware trading on the financial markets. Remember that you can always experiment without risk thanks to the demo mode account provided by almost all the major online broker platforms for online trading.

Of course, we invite you to share your thoughts on this theme with us, and – if you want – to provide our readers with some advice to further improve the effectiveness of their strategies. Is there any suggestion you would like to spread with the community for better swing trading? Do you prefer swing trading or do you like to speculate on the very short term? And again, which broker do you use for your online investments?

We can’t wait to read what you think. And good trading!

What is Swing Trading?

Swing Trading means operating with a trading position that lasts from two days up to a week. in general, the average timing ranges from 2 to 5 days.

How much capital does Swing Trading take?

By choosing CFD Platforms, a deposit of € 200 is sufficient as in the case of eToro.

What are the alternatives to Swing Trading?

The most used are Intraday, with operations closed within the day, and Scalping, where you operate with trades of a few minutes.

What is the best platform for Swing Trading?

Surely all the best CFD Platforms allow you to invest better in this way.

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