Wondering what is swing trading? Learning how to swing trade can be a great way to consider investing in the stock market as a beginner.
In this post, we’ll cover the basics of how to swing trade and what exactly swing trading even means, since it can be confusing if you are new to investing in the stock market.
What is Swing Trading?
Swing trading is when you buy a stock with the intentions to hold the stock for a short amount of time, for example perhaps for a week or a month. You are not making a long term investment in the company, but rather looking to take advantage of short-term investment.
Swing trading is a short term investment, and offers a lot of flexibility. It can also be very exciting and interesting to watch your stocks in a short time period to see what may happen.
Now that we know what swing trading means, we’re ready to learn the basics of how to start swing trading for beginners so you can get started with this investment strategy.
Once you understand the basics of learning how to swing trade, then you can start thinking about all the different strategies. If you don’t have the basics down, it is very easy to feel overwhelmed. This is especially true as you start to get into complex swing trading algorithms, backtesting, and analyzing candlestick chart patterns for swing traders.
This article will walk you through the 10 most basic and essential must-know tips for starting in swing trading.
Please note: This article is not to be construed as financial advice. Never invest more than you can afford to lose. We do not make any claims of making any money through trading, you should be fully prepared to lose money.
Here are the 10 Steps to Getting Started With Swing Trading:
These steps are not too complicated. We have many different articles on our website we’ve linked to that will explain each of these in more detail as needed.
Step 1: Open an online brokerage account that won’t flag you for pattern day trading.
Even if you are not day trading, the day trading laws can cause problems for some swing trading investors.
There are limits which can cause you to be forced to do things you would rather not do, and many online brokerages have automatic trades that can cause you to lose money if you’re not careful!
To learn more about what to look for in an online brokerage account, see our How to Choose an Online Broker article.
Step 2: Learn more about Hot Sectors
Hot Sectors are the industries and types of stocks that have a lot of buying and selling activity. The more active a stock, the better opportunity it may possibly have for a swing trading strategy.
For example, we have written about biotech stocks and the new advancements with blockchain technology, both which are hot sectors worth exploring. We have also talked about marijuana stocks, since many new companies have entered the market since most states have now legalized medical marijuana. There are lot of different industries, knowing which industries are hot and have a lot of activity is important.
We have written a number of articles on swing trading that explain hot stock sectors in great detail. Some of the ones you may wish to read include 35 Swing Trading Rules You Should Know and How to Screen Stocks for Swing Trading.
Step 3: Look for stocks with high volatility
If a stock has a lot of ups and downs you will have more swing trading opportunities. High volatility can often be measured through the usage of candlestick charts, as well as by analyzing stock market trends over a period of time.
Step 4: It’s this simple: Buy on the lows and sell on the highs
This may seem like common sense but it takes a great deal of training to be able to do this successfully. If you are new to swing trading please realize that swing trading is not easy. It often can take years of work and devotion to succeed.
Your goal is to purchase a stock for the lowest price as possible, and then sell it for the highest price possible. It’s that simple – and that hard!
Step 5: Timing is Everything
You may buy the right stock but if you don’t time it right you are in trouble. A few minutes is all it takes to lose a lot of money fast. You may want to explore setting up potential stop losses with your online brokerage software, but that has its pros and cons as well.
Sometimes it can take several months for your stock to finally be where you want it to be for the swing. Which leads us to our next consideration. 🙂
Step 6: Only swing trade stocks you would be willing to trade long term
Sometimes a swing trade can go wrong so you might get stuck in a position for a while. This is especially if you are new and inexperienced. You never know what can happen during the day, so it’s a good idea to choose stocks that also have long term. Ask yourself, does this stock ever have potential to become a blue chip stock?
Unexpected life events can cause you to lose focus on your stock positions. Maybe the doorbell rings and in that fleeting moment you’re answering the door, you lost out on the window of opportunity to make the trade at the best time.
For this reason, always imagine what would happen if you bought a stock and forgot to check it. If you are afraid to hold it long term, swing trading it becomes more risky and you’ll have to pay much more daily attention to the position.
Step 7: Have a trade plan in mind – Set your entry and exit points
The best way to avoid the problems associated with step 6 is to have a trade plan. A trading plan doesn’t have to be complex. What is important is you decide a price you’ll buy at and a price you’ll sell at. For example, maybe you’ll buy at $4/share, and sell when it reaches between $7-$10/share.
The most important thing to remember? Don’t get greedy. If you see a stock soar up to $7 or $8, don’t be holding out for $9 or $10 because that may not ever happen. Sometimes it’s better to sell for a smaller profit margin than be stuck holding a stock.
Step 8: Don’t expect to get rich on a single trade – Pace Yourself
Think of swing trading as a marathon and not a sprint. It takes a good bit of practice to be able to have a good feel for what the market might do.
You should not risk your entire investment income in one swing trade. It’s best to start with smaller amounts and go from there. $500 is a lot safer than $50,000.
Step 9: Don’t put all of your eggs in one basket
Remember that diversification is a good rule of thumb for any trader. Do not expect one stock to save the day and make you rich. Most of the time, you’ll need to have a large portfolio of stocks to be watching, because there are times you may end up holding things longer than you want to. Sometimes, you’ll even have to sell certain stocks for a lower amount than what you bought them for.
Step 10: Keep a swing trading journal
If you keep track of your trading successes and failures you will better learn from your experiences. A journal can help you keep track of what trades you have going on. This can be as simple as a notebook you keep next to you while you’re at your computer, or you can use a spreadsheet or a note-taking app. Just having a running list of your trade plans and trade history can be a wonderful way to learn!
Knowing the Basics of How to Swing Trade Means Better Long-Term Results
Once you master these simple basics, and find yourself consistently making successful trades, you’ll be ready to explore the more advanced options for swing trading.
Do you know of any swing trading basics not mentioned in the 10 steps? We’d love to hear your comments and questions in the comments section below!