Swing trading can be described as a kind of fundamental trading, in which positions are held for more than one day. This is related to, that most of the proponents of fundamental analysis, actually, are swing traders, since a change in the fundamental background usually takes several days or even weeks, to lead to sufficient price movement. giving a reasonable profit.
But this description of swing trading is somewhat simplistic.. In reality, swing trading is more likely between intraday and trend trading. Внутри-дневной trader удерживает торговую позицию от нескольких секунд до нескольких часов, but not more than a day. A trend trader examines long-term fundamental trends in a particular market, and can hold a trading position for several weeks or months. Swing traders, for example in the stock market, usually hold positions for a period of several days to two or three weeks – ie. this is an intermediate option between those two extremes, and they will trade based on intra-week or intra-monthly fluctuations between market optimism and pessimism.
Trading styles
Before, how we move on to swing trading, let's look at other basic trading styles:
- scalping
scalping – this is a type of trade. in which the trader makes many transactions during the trading day. trying to collect (scalp) small profit from each trade, using short-term market fluctuations.
- Impulse trading
In impulse trading, traders try to find markets, which move strongly in one direction on a large volume, and try to jump into this movement, to grab some of the profits.
- Technical trading
Технические трейдеры изучают ценовые charts, observing lines and indicators on market charts to look for signs of coincidence or divergence between them, what could be a signal to buy or sell.
- Fundamental trading
Fundamental traders trade market instruments, основываясь на фундаментальном анализе, exploring news events in detail, like actual or expected inflation data, company income, foreign economic balance, information on mergers and acquisitions, etc..
Correct market
The first key to successful swing trading is choosing the right market.. The best candidates for this are highly liquid instruments., which are actively traded on major financial markets. In active markets, the price of these instruments will fluctuate between widely-defined maximum and minimum extreme values, and the trader can «ride the wave» in one direction for days or weeks, to then switch to trading in the opposite direction, when the price will reverse.
It should be noted, that swing trading can look completely different in situations of strong bear or bull market, rather than between these two extreme market conditions. In these extreme conditions, even the most active markets will not show the same fluctuations, that with a relatively stable position for several weeks or months. In a strong bull or bear market, momentum will drive prices in one direction over a long period of time, and the best strategy, thus, будет заключаться в том. to trade based on a long term directional trend.
Therefore, swing trading is best done, when the markets go nowhere – the price rises for several days and then declines for the next few days, repeating the same pattern over and over. Sometimes it can take several months in the stock market, while major stocks and indices will remain at about the same levels, but a swing trader will have many opportunities to capture short-term up and down moves (sometimes within the price channel).
Certainly, the problem with both swing trading and long-term trend trading is to correctly identify, what market are we dealing with. For example, торговля на колебаниях, probably, would be best suited for 2004 And 2005 of the year, while trend trading would be an ideal strategy for a bull market 2006 and 2007.
Technical justification
Most studies of historical data have proven. what. for example, on the stock market, which would be suitable for swing trading, liquid stocks tend to trade above and below average, which is reflected in the exponential moving average chart (EMA). In his book «Trading with Dr. Elder» Alexander Elder uses his understanding of the behavior of stocks above and below the average price, to describe the swing trading strategy as «buying in the zone of normal prices and closing in the euphoric stage» or «selling in the zone of normal prices and closing in the depression stage». Once a swing trader used the EMA to identify a typical bottom on a price chart, it goes long in the mid-range, when the price moves up and short, when the price moves down.
In this way, swing traders do not expect to capture a large move on a single trade – they are not worried about the perfect timing, to buy right at the bottom and sell right at the top. In a real trading environment, they wait, for the market to reach its base and confirm the subsequent direction, before making a deal. The situation is getting more complicated. when there is a stronger uptrend or downtrend in play: trader can, paradoxically, go the long side, when the price drops below its EMA and wait for the uptrend to resume. Or he can make a short trade, when the price moves above the EMA and wait for a subsequent decline, if the longer term trend is downtrend.
Profit taking
When it's time to take profits, it is advisable for a swing trader to exit the market as close as possible to the upper or lower channel line, although not aiming for excessive precision, so as not to risk in the absence of a better opportunity. In a strong market, boiler, there is a pronounced trend, traders can wait until the channel line is reached, чтобы зафиксировать прибыль. but in a weaker market, they may prefer to lock in before, than the line will be reached (when, when the direction changed, and the line was not reached on this particular swing).
Conclusion
Торговля на колебаниях, actually, is one of the best trading styles for beginner traders, while assuming a significant profit potential for advanced traders. Swing traders get enough feedback on their trades after a few days, to keep them motivated, but their long and short positions only last a couple of days, which does not cause despair. Against, trending trading suggests greater profit potential, if the trader is able to catch the weekly or monthly market trend, but very few traders have sufficient discipline. to hold a trade position for such a period of time, while maintaining the required concentration. On the other hand, conclusion of several transactions per day (with intraday trading) can be overly stressful for some traders, what makes swing trading «golden mean» between these two extremes.
A source: Forex Magazine.
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