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Swing trading is a short-term trading strategy designed to make a profit out of changes in price.
Typically, a position, often in a stock, is only held for a number of days before it's sold, and it's this ‘swing’ from one value to another that gives the trading method its name.
The key is to keep a close eye on the movement in value of various kinds of stocks, so that you can get in at a level that's appropriate for you, and get out a short time later – one to four days is common – with a profit. In this way it differs vastly from strategies often employed by institutional and other investors, who hold their assets for many years, riding the ups and downs and only cashing out when company shares or other assets have reached an advanced or mature stage where the value has risen significantly.
Due to inherent fluctuations in many of the world's currencies, some traders develop forex swing trading strategies to benefit from crashes. This can be down to economic or political instability in one or several countries, for instance, giving traders an opportunity to buy low and then sell when rises in the value of currencies occur as they recover, perhaps supported by national central banks or international lenders.
People engaged in swing trading carefully analyse price charts and other data so they can see movements in the value of the assets they're considering taking a position in, and determine between the highs and lows when to act. This is all part of their trading strategy, and a swing trade can potentially be an efficient way to make a profit from the markets, as it requires less time and effort than other styles of trading.
A properly executed swing trading strategy can enable traders to get the most out of a short period of time. Unlike day traders and others, it's less important to stay glued to screens and charts as you watch the data constantly change.
That's why swing trading is one of the most popular forms in use, but that's not to say it's for everyone: there is an art to it, and 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 the more seasoned, or 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.
Being properly prepared before the markets open and maintaining a strict watch on the assets you're interested in or hold – as well as keeping an eye on the financial media – should give you a feel for how markets are performing on any given day and help you to make the most out of swing trading.
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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.
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