Swing trading is a method where traders attempt to gain short-term profits by holding a financial instrument or asset but holding the position for a few days or weeks. Like other forms of trading, swing traders attempt to buy the instrument at a lower price, sell it when the price rises and make a profit from the difference.
Traders favor swing trading because of the flexibility it provides since you aren’t holding on to assets for too long. You can move in and out of a market, taking gains where you can, even though the profits you make for every trade may not be substantial.
Still, swing trading comes with its fair share of risks and can expose your portfolio to the negative effects of volatility if you dive head first into it. To ensure that you get started on the right foot and work towards consistent profitability as an amateur, you need to consider learning swing trading in the most effective way possible.
5 Bests Ways Of Learning Swing Trading
Learning to swing trade can be hard, and knowing where to start can be even harder. Therefore, we provide you with 5 proven ways of learning how to swing trade.
However, remember that there are no fast-tracks to success, you need to spend a lot of your spare time in educating yourself.
1. Reading books and taking courses
Although swing trading is a less risky or aggressive form of trading compared to day trading, it does come with its fair share of risks.
Whether you are a complete newbie or someone with a little bit of experience from day trading coming into swing trading, it is important to build up on your knowledge of this trading method.
These books can teach you just about anything you need to know about swing trading. They give you insight into real-world scenarios based on the experience of expert swing traders.
From these books, you can learn basic concepts like pivot points and scalping, how to identify trends, and how you can trade assets like options and stocks. With swing trading books, you can lay a solid foundation for future technical analysis, risk management, strategy creation, and execution because they use examples to show you how to trade successfully.
Some of the best swing trading books basically set you up for success as they give you access to unique trading strategies and insight from several experienced and successful swing traders. Most of these books tell you what to do as an amateur by indicating:
- What amount you should use to open an account
- The brokers you can choose from
- What top traders to pay attention to
- The best entry and exit points for trades
- The best indicators to use for swing trading
- Rules to follow for success;
- The strategies used by top swing traders in the market.
Before you dive into the market, it is recommended that you take some time to digest books and courses on trading techniques. The information from books will be invaluable as you start swing trading.
2. Use Paper trading
Experience remains the best teacher when it comes to trading, and paper trading is a way to gain experience without any of the risks from actual trading. Paper trading involves using market stimulators to create real-time trading scenarios where amateurs can test their knowledge. You cannot make any money from paper trading because you are not staking real money anytime you make trades.
The best way to do paper trading is to join a broker that offers paper trading services. This service is usually free, and you don’t have to pay a commission or fee to the platform providing this service.
But, you should be diligent when choosing a broker to work with because some accounts do not give you real-time market data to work with or delay the information for some minutes. In addition, treat your paper trading account as a real account.
Since paper trading doesn’t involve fear or the emotions associated with real swing trading, it is easy to get lost in the euphoria of winning and not think much of the losses. When you eventually transition to a real trading account, you will deal with the emotions, and if you don’t learn how to manage them from the start.
3. Create a Swing Trading Strategy
Before you enter the market and start dealing with real money, it is always a good idea to come up with a trading strategy. This strategy highlights your trading goals and specific details on the techniques and indicators you are going to use to achieve those goals.
Creating a trading plan helps to streamline your thought process and shows you what you need to do to achieve consistent profitability.
How to create a swing trading strategy
You can decide on a trading strategy by taking a look at other strategies available and selecting one that showcases your trading style or gives you an edge in the market.
If you want to go a different route and come up with your own strategy, do your homework by researching your market and formulating a hypothesis or assumptions on what works best for your chosen market.
You also have to decide if you are developing a strategy specifically to trade one asset or creating something that enables you to trade across several markets. Doing this helps to streamline your action plan and enables you to highlight key aspects of your strategy.
For instance, if you are going to be swing trading in the stock market, you may want to create a strategy for the S&P 500 because it is widely used as a benchmark for investors and traders alike.
Then, you can test the idea based on historical data to determine whether or not the idea has worked in the past and the possibility of it succeeding in future trades. You can manually backtest your idea, but this takes a lot of time and effort to achieve.
Luckily, there are several reliable backtesting platforms with extensive market data and low cost where you can see how well your strategy will perform in the market.
You can use the results of the backtesting to refine your strategy and figure out what will work when swing trading and what to do away with.
4. Keep a trading journal
A well-documented trading journal can act as a coach. It gives you the opportunity to monitor your trades regularly, spot areas of concern, and fine-tune your strategy until it becomes a successful system.
When you can easily identify your success, failures, strengths, and shortcomings, it creates an avenue where you can learn from your mistakes and become a more efficient swing trader.
You can use a spreadsheet like Excel to create a trading journal, but a simple note or note-taking application works fine. Your trading journal should account for:
- Date and time of the trade
- Asset or trading instrument, for instance, S&P 500 in stock trading and EUR/USD in forex swing trading.
- Buy or Sell position
- Time frame
- Entry point
- Position size
- Stop loss orders, Take Profit levels, and any other major risk management tools used.
- Exit point
- The outcome of the trade
This is the general information your journal should contain, but you can always broaden the scope of this in order to paint a better picture.
5. Connect with other swing traders
Collaborating with other traders is a way for you to learn from the experience and mistakes of others. It also shows you that you are not in the challenges you face as a beginner.
In addition, someone may have the solution(s) to the problems you are facing in swing trading or future challenges you will encounter. Find relevant groups to join, follow other successful swing traders, and don’t forget to share what you have learned as well.
Some will say that you need at least 6 months before you can have a solid foundation in swing trading. But there is no fixed timeline regarding how long it should take you to learn swing trading.
People with experience in similar trading styles like day trading may find it easier to learn swing trading and start executing trades. But if you have no knowledge of swing trading or trading in general up to this point, take the time needed to understand the basics, learn a few skills and test out your initial strategy before trading in real-time.