Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Swing trading

Published on: 09/12/2021 | Modified on: 19/08/2022

Swing trading is a short or medium-term trading strategy designed to make a profit out of changes in price. Typically, a position in a financial asset is only held for a number of days before it's sold. It's the ‘swing’ in the asset's price, from one value to another, that gives the trading method its name. In this article, we explain the basics of swing trading, along with tips and examples of how to swing trade in the stocks and forex markets.

KEY POINTS

  • Swing traders look to capitalise on an asset’s price fluctuating between two differing values
  • It’s not defined as either a short or long-term strategy as it can take place over days, weeks or months
  • A trader will look to “buy” an asset when they think that the market will rise, or “sell” when the market will fall in value
  • Swing trading can be achieved through derivative products such as spread bets and CFDs
  • Traders may use a combination of technical price action and fundamental analysis as support

What is swing trading?

A swing trade is a method by which a trader can look to capture efficient, shorter-term profits, given the typically narrow timeframes these trades are open, and the relative ease with which they can be set up and managed. Swing traders must carefully analyse price charts and other data in order to identify movements in an asset’s value. Thus, traders will be aiming to determine when a price is likely to move next before entering the position, in order to capture any potential profit from the respective move.

This means swing traders must familiarise themselves with technical analysis​, using these techniques as a set of guiding principles for their decisions. They should also have an understanding of fundamental analysis, examining the asset’s fundamentals to support their technical evaluation.

The key is to keep a close eye on the movement in value of various kinds of securities, so that you can get in at a level that's appropriate for you, and get out a short time later with a profit. However, some traders may choose to keep their position open for weeks, depending on their strategy.

Swing trading differs slightly from long-term trading strategies. It is often employed by institutional investors, who tend to hold their assets for many years. These investors look to ride the asset price's ups and downs, only cashing out when the asset’s value has reached an advanced or mature stage, having risen significantly.

Swing trading on margin

When swing trading on our platform, traders are required to trade using margin​, also referred to as leverage. This means that you only need to deposit a percentage of the full value of the trade to open a position and gain exposure to the financial markets. The margin requirement will vary depending on the asset that you want to trade, but can start from as little as 3.3%. Choosing to keep the position open overnight on margin positions will also mean that traders may have to pay a holding cost​, depending on the direction of their trade and the applicable holding rate.

We offer spread bets and CFDs, which are leveraged products that you can use with a range of short and long-term trading strategies, including swing trading. This is useful for traders who want exposure to a larger position size, but it is important to remember that profits and losses are equally magnified. If the market moves in the opposite direction to your position, this will result in a much larger loss of capital, as it will reflect the full value of the position, rather than just the margin requirement.

Learn more about margin trading​​.

How to swing trade

  1. Open an account. Open a live trading account to start swing trading stocks. You can also open a demo account if you would like to practice the above swing trading strategies in a risk-free environment.
  2. Research markets using technical analysis. Utilising tools such as our pattern recognition scanner, you can spot trend reversals and other price signals to help inform your swing trading efforts.
  3. Choose an asset to swing trade. Once you have undertaken your research, decide which asset and time frame you wish to swing trade. Also, determine your entry and exit strategy based off your swing trading signal. For example, to buy AAPL when the price hits the support level.
  4. Use risk management conditions. Include a stop loss and take profit order to mitigate any risks. These risk management tools help keep your trades consistent and relevant to your trading strategy.
  5. Monitor your position and exit the trade. Keep an eye on your trade whilst it is open. Be aware of gapping and slippage, and changes within the market’s sentiment. Learn more about gap trading. If the trade has not been exited by your stop loss, close the trade as per your swing trading strategy.

Swing trading as a part-time job

For day traders, it’s often their full-time job, so they can focus solely on their trades and dedicate more time to improving their strategy, whereas swing traders still need to balance trading with their day job. This is because swing traders do not need to monitor price charts all day for tiny price movements; therefore there is more room to trade at home​ or on-the-go as a hobby.

What are some swing trading strategies?

A swing trading strategy involves traders ‘buying’ a security when they suspect that the market will rise, or ‘selling’ an asset when they suspect that the price will fall. Swing traders can take advantage of the market’s fluctuations as the price swings back and forth, from an overbought to oversold state.

Price action strategy

Price action​​ is a strategy that involves monitoring price charts and historical data without the use of technical indicators. As swing trading is a form of short-term trading, it is essential that traders are experienced in the analysis of price charts and trending waves in order to determine appropriate entry and exit points.

By monitoring swing highs and swing lows on candlestick charts​​, price action traders can spot candlestick patterns​​, including trends and reversals, which may help to give them more knowledge of the markets and whether there may be a potential reversal in trend.

Learn how to short-term trade​​.

Swing trading forex

Due to inherent fluctuations in many of the world's currencies, some traders develop forex swing trading strategies to benefit from crashes. These can be the result of economic or political instability in one or several countries. For instance, traders can buy low and then sell when the value of currencies rise as they recover, perhaps supported by national central banks or international lenders.

How to swing trade stocks

There are numerous strategies you can use to swing-trade stocks. In the below example, we've shown a swing trade based on trading signals produced using a Fibonacci retracement​. The three most important points on the chart used in this example include the trade entry point (A), exit level (C) and stop loss (B). Any swing trading system should include these three key elements.

Guide to diagram:

A – Trade entry point

B – Stop-loss

C – Price forecast (exit level)

D – Fibonacci technical analysis

The stop-loss level​ and exit point don't have to remain at a set price level as they will be triggered when a certain technical set-up occurs, and this will depend on the type of swing trading strategy you are using. The estimated timeframe for this stock swing trade is approximately one week. It's important to be aware of the typical timeframe that swing trades unfold over so that you can effectively monitor your trades and maximise the potential for your trades to be profitable.

How to pick stocks for swing trading

When swing trading stocks, it is essential to choose the right assets to trade, as bad market selection could be a major weakness in your trading strategy. Make use of these tips to enhance your market selection efforts.

  • Make use of chart patterns. Use our pattern recognition scanner that can help you identify reversal patterns like a double top or triple top chart pattern. Visit our article on stock chart patterns​​ to discover the most important chart patterns and their meanings.

  • Monitor the economic calendar. Keep an eye on the economic calendar​, which can help you determine the health of a nation’s economy, and potential trading opportunities or risks in the future.

  • Factor in earning calendars. Earning calendars will help you factor in sudden price movements to your swing trading strategies.

  • Be careful when trading penny stocks.  Penny shares​ are highly speculative investments, so take care when trading them. Although the volatility of the penny stock markets presents high-growth trading opportunities, it also presents larger risks.

Swing trade on over 12,000 instruments

What technical indicators can be used in swing trading?

1. Fibonacci retracements

The Fibonacci retracement pattern can be used to help traders identify support and resistance levels​, and therefore possible reversal levels on price charts. For example, stocks often tend to retrace a certain percentage within a trend before reversing again, and plotting horizontal lines at the classic Fibonacci ratios of 23.6%, 38.2% and 61.8% on a stock chart can reveal potential reversal levels. Traders often look at the 50% level as well, even though it does not fit the Fibonacci pattern, because stocks tend to reverse after retracing half of the previous move.

A stock swing trader could enter a short-term sell position if price in a downtrend retraces to and bounces off the 61.8% retracement level (acting as a resistance level), with the aim to exit the sell position for a profit when price drops down to and bounces off the 23.6% Fibonacci line (acting as a support level).

2. Support and resistance triggers

Support and resistance lines represent the cornerstone of technical analysis and you can build a successful swing trading strategy around them.

A support level indicates a price level or area on the chart below the current market price where buying is strong enough to overcome selling pressure. As a result, a decline in price is halted and price turns back up again. A swing trader would look to enter a buy trade on the bounce off the support line, placing a stop-loss below the support line.

Resistance is the opposite of support. It represents a price level or area above the current market price where selling pressure may overcome buying pressure, causing the price to turn back down against an uptrend. In this case, a swing trader could enter a sell position on the bounce off the resistance level, placing a stop-loss above the resistance line. A key thing to remember when it comes to incorporating support and resistance into your swing trading system is that when price breaches a support or resistance level, they switch roles – what was once a support becomes a resistance, and vice versa.

3. Channel trading

This swing trading strategy requires that you identify an asset that's displaying a strong trend and is trading within a channel. If you have plotted a channel around a bearish trend on a stock chart, you would consider opening a sell position when the price bounces down off the top line of the channel. When using channels to swing trade, it's important to trade with the trend, so in this example where the price is in a downtrend, you would only look for sell positions – unless price breaks out of the channel, moving higher and indicating a reversal and the beginning of an uptrend.

Learn more about breakout stocks​.

4. 10- and 20-day SMA

Another of the most popular swing trading strategies involves the use of simple moving averages (SMAs)​. SMAs smooth out price data by calculating a constantly updating average price which can be taken over a range of specific time periods, or lengths. For example, a 10-day SMA adds up the daily closing prices for the last 10 days and divides by 10 to calculate a new average each day. Each average is connected to the next to create a smooth line which helps to cut out the 'noise' on a price chart. The length used (10 in this case) can be applied to any chart interval, from one minute to weekly. SMAs with short lengths react more quickly to price changes than those with longer timeframes.

With the 10- and 20-day SMA swing trading system, you apply two SMAs of these lengths to your stock chart. When the shorter SMA (10) crosses above the longer SMA (20) a buy signal is generated as this indicates that an upswing is in progress. When the shorter SMA crosses below the longer-term SMA, a sell signal is generated as this type of SMA crossover indicates a downwards swing.

5. MACD crossover

The MACD​ crossover swing trading system provides a simple way to identify opportunities to swing trade. It's one of the most popular swing trading indicators used to determine trend direction and reversals. The MACD consists of two moving averages – the MACD line and signal line – and buy and sell signals are generated when these two lines cross.

If the MACD line crosses above the signal line, a bullish trend is indicated and you would consider entering a buy trade. If the MACD line crosses below the signal line, a bearish trend is likely, suggesting a sell trade. A swing trader would then wait for the two lines to cross again, creating a signal for a trade in the opposite direction, before they exit the trade.

The MACD oscillates around a zero line and trade signals are also generated when the MACD crosses above the zero line (buy signal) or below it (sell signal).

Swing trading vs day trading

Swing trading is seen as more of a medium-term trading strategy, whereas day trading​ applies only to the short-term. Whereas swing traders could hold their positions for days or weeks at a time, day traders only buy and sell assets with the aim of closing their positions before the end of each day. Therefore, unlike day traders and scalpers, it is less crucial for swing traders to stay glued to their screens as you don’t need to constantly monitor quick price movements.

Swing traders need to be aware of changing trends over a few days or weeks, as opposed to the small price movements over minutes or seconds. This means staying up to date with market sentiment and economic news to have an idea of what direction the market might be heading. Having an understanding of technical indicators​​ on price charts is what informs a trader when to enter and exit a position.

The freedom of swing trading is why it’s one of the most popular strategies in use. Swing traders need to have the ability to quickly scrutinise charts and data, and use historical information to know exactly when to buy or sell. Less experienced traders might find it hard to master this skill, while professional traders may have the expertise to profit from it. It's not always possible though to get in and out of large volumes of assets quickly.

Swing vs position trading

The main difference between swing trading and position trading​​ is the time that the financial asset is held for. Whereas swing trading aims to capture the up-swings and down-swings in price for a short period of time, often for a number of days or weeks, position trading involves a longer timeframe. Position traders tend to buy assets and hold them for several months or even years, depending on the trend direction.

Get started on our swing trading platform

Our award-winning swing trading platform**, Next Generation, comes complete with tips and updates for the financial markets. In particular, swing traders can make the most of our price projection tools, technical indicators and drawing tools in order to display your data as clearly as possible.Price action strategies in swing trading are particularly simple to monitor with our customisable chart types and range of chart timeframes.

Familiarise yourself with our online swing trading system by watching our platform trading tutorials​.

Trade on the go with our swing trading app

You can also practise swing trading strategies using our mobile trading application for both iOS and Android devices. Learn more about the Next Generation mobile app​, which comes with customisable trading charts and adaptable layouts. The app can also be used on tablet devices for traders on-the-go.

How to swing trade stocks & indices

Our Opto eBook details a pro’s step-by-step guide on how to place your first trade, the differences between swing trading and day trading, and examples of stocks and indices.

Get this free report

What are the benefits of swing trading?

  • This style of trading is compatible with those who have full-time jobs and can’t dedicate hours each day to trading. This also means that swing traders will have another form of income should they make a loss.

  • You can set wider stop-loss orders, so this should help reduce the number of positions closing prematurely.

  • Day traders often need to be able to remain calm and stay focused on their screens for hours each day, which is less important for swing trading as the process happens at a slower pace.

  • Swing trading can be a more efficient use of capital by holding positions for higher returns, rather than opening new positions each day. However, choosing to do so will mean traders must take holding costs into account.

What are the drawbacks of swing trading?

  • Traders must have knowledge of technical analysis in order to identify the entry and exit points. While this may come naturally for professional traders, those who are looking to start swing trading may need more practice analysing price charts.

  • Due to the position being held overnight, or over several nights depending on the trader’s time horizon, you run the risk of gapping. Certain economic indicators​ can affect an asset's price overnight.

  • Holding the position for a longer period of time may result in larger profits, but it can also result in larger losses, due to the use of leverage.

  • Swing trading requires patience and could still be a high-stress environment if a trade begins to move in an unfavourable direction.

Summary: can you make a living swing trading?

Swing trading is an alternative strategy for those who favour short-term trading, but can’t dedicate hours to trading every day. While it requires a comprehensive understanding of technical analysis, it can result in more efficient returns, relative to day trading.

As with any form of trading, there will be risks involved. Swing traders, particularly those just starting out, should ensure they have a solid understanding of the technical indicators, as well as the market fundamentals, that are informing their trade decisions. A swing trader should also strongly consider having a stop-loss in place, should there be breaking news that affects the market direction they’re favouring. Read more about money management​​.

FAQs

Is swing trading safer than day trading?

Neither swing nor day trading is safer than the other. Day trading may be seen as safer to some as it relies on much smaller price movements, and it also eliminates overnight slippage and gapping on price charts. However, swing trading comes with less trading costs as it’s spread over a wider time period, and doesn’t require you to monitor price charts consistently as a full-time job. Learn more about day trading.

What markets can you swing trade in?

You can apply a swing trading strategy to any financial market, including forex, stocks, indices, treasuries, commodities, and ETFs. Browse our market offering for spread betting and CFD trading.

How do I pick a stock for swing trading?

In order to capture price swings, you could look for stocks with relatively high liquidity and price action, but without too much volatility, as this could end in losses. Read our guide to 13 strategies for picking stocks.

Is swing trading really profitable?

Swing trading can be profitable if the strategy is successful and you manage to magnify your profits by using leveraged products. However, these types of products come with a lot of risk and can end up causing you a catastrophic loss if the markets move against you. Read our risk-management guide for information on how you can protect your capital when swing trading.

Can you swing trade on penny stocks?

You can swing trade on penny stocks, as the volatility of the market offers high-growth trading opportunities. However, penny stocks are very risky investments so you should trade with caution, as large price swings can end in losses if the market moves against you. Learn how to trade on penny stocks.

Which chart timeframe is best for swing trading stocks?

Given that swing trading is a medium-term strategy, traders often opt to use hourly, four-hourly, or daily charts to analyse price trends. However, this may not suit every swing trader, so have a look for yourself and learn to trade on different timeframe charts.


*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
**No.1 Web-Based Platform, Platform Technology and Professional Trading, ForexBrokers.com Awards 2021; Rated Highest for Trading Ideas & Strategies, Seminars & Webinars, Trade Signals Package and Ease of Account Application/Opening, based on highest user satisfaction among spread betters, CFD and FX traders, Investment Trends 2020 UK Leverage Trading Report; Best Platform Features, Best Mobile/Tablet App, rated highest for Charting, Investment Trends 2019 UK Leverage Trading Report; Best In-House Analysts, Professional Trader Awards 2019.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Ready to Find Your Flow?

start trading with a live account or
Try a demo with £10,000 of virtual funds.

burger-close