Swing Trading

Learn Swing Trading – Why many traders are successful

Anyone can learn swing trading. But what does that mean anyway? Swing, this word from the English has several meanings. Swing, rocking, swinging, pendulum. But in the end it doesn’t matter how we translate the term exactly. Far more important is what it means in trading.

And this is also the main topic of the following article. We deal with the question of what a swing trader does and how swing trading differs from other trading approaches.

First of all, we will look at what trading styles there are and what distinguishes them. Only then do we move on to swing trading, because it first requires a knowledge base.

Trading Styles

Just as there are different asset classes (stocks, commodities, bonds, currencies, etc.) that can be traded with different products (CFDs, futures, ETFs, stocks, options, etc.), there are different ways to set up trading.

To mention here would be scalping, day trading, trend trading and even swing trading. If you take a closer look, you will notice that the classification is mainly based on the time component, which we would like to deepen together.

Scalping

Scalping should be reserved for trading professionals. Because here it’s all about trading every second.

And what sounds like stress is also stressful. With scalping, trades are opened and closed a few seconds later. Scalpers trade frequently. Often several hundred times a day. In – out. That is the motto. And it’s obvious that this is quite complex.

And not only in terms of physical resources. Because trading every second requires full concentration. You have to be fully focused and every wrong click can cause high losses.

So scalping is not something you should do in the evening, when you come home from work, quickly after dinner and before going to bed. Tiredness is anything but beneficial here.

But scalping also requires mastery of the tools to the last detail. Having to quickly find the sell button in the trading platform – that is a nogo. Likewise the position sizing… 3x long in the Dax Future instead of 1x?

This can end badly. Double the long position instead of closing it? It happens if you hit the buy button instead of sell.

So a scalper is a skilled worker who can operate his tools while sleeping. And these tools must be of high quality.

Tools for traders

Because the wireless mouse, which has just switched back to stand buy mode, is not the ideal instrument for scalpers.

Neither is the wireless keyboard, which just once again loses the connection to the PC. Here cable-bound equipment must her. Special keyboards and mice for Scalper exist, but cost a few thousand Euros.

Conclusion: Scalping as written at the beginning is only something for people who are fully dedicated to trading.

For professionals this trading style is absolutely unsuitable, especially if you are still at the beginning of your trading career. What is the situation with day trading now? Let’s look further.

Day trading

Day trading is the short-term stock exchange trading during a single trading day.

Thus scalping would also fit into this definition. But the daytrader acts differently than the scalper.

Although he is also positioned for the short term, he does not trade every second.

Trading every second

The holding period of a trade ranges from a few minutes to several hours. Daytraders are also skilled workers who have to master their tools, because even here it can and must sometimes go fast.

On the other hand some daytrading methods require good sitting. Because short term can sometimes be quite long, if you trade in 15 minute intervals and the trade is already running for several hours.

But what is it with the time units actually on itself? What do you trade and how?

Time units

The concept of time units comes from the way the charts are presented, which traders usually like to work with.

Charts, i.e. graphically prepared data series of security prices, can be displayed in the usual trading platforms at different time intervals.

If, for example, you choose the very popular setting of candlesticks in this country, where each candlestick shows the high/low/open/closing price, this display can refer to any possible time interval.

Frequently used are 5 minute settings, 15 minute settings and 60 minute settings. For completeness we mention that there are also daily charts, monthly charts or yearly charts.

The time unit is not only important in day trading but also beyond. Even more: the most frequently chosen time unit is the day chart. But let’s come back to day trading

What makes day trading a day trading

As we now know, a daytrader can work in different time units. But he does not have to dedicate himself to one time unit completely but can combine them.

Daytraders even change the time units very often and gladly, for example to check if their entry signal, which they received in the 15 minute chart, is confirmed in the 60 minute chart.

The same applies then under certain circumstances also to the exit from the trade.

But day trading is ultimately the reason that the trade is not “taken” into the next trading day. Holding a share overnight is therefore largely taboo. This is largely because there are also exceptions.

There may be situations where the day trader decides spontaneously and flexibly not to end the trade before the close of trading.

Also here there are numerous techniques to accomplish this. But in the end it remains the statement that day traders avoid the so-called “overnight risk” and open and close their trades during the trading day.

Daytrading for professionals

Should or can – and we do not mean this term in a derogatory way – an after work trader turn to day trading?

Here there is a lot to consider.

Day trading is certainly much less strenuous than scalping.

But even here you sometimes have to make quick decisions.

A daytrader needs good tools and must also master them.

Trading for professionals

Remains the hurdle that a working person after work, if he has a partner, children or other interests, finds little time to do day trading.

Certainly the US stock exchanges are open until 22 o’clock CET and one can usually still daytrade many hours in the evening. Nevertheless one is limited, because one will probably miss interesting market phases such as the US Open (stock exchange opening Wall Street starting from 15:30 clock).

But if you are not too tired after a hard day at work and if you align your possibilities with your resources, there is nothing against daytrading for professionals.

Does a swing trader now remain in reverse and as a differentiation to the daytrader, when we look at the next trading style, always positioned overnight? We will talk about that in the following lines.

Swing Trading

Besides the different meanings of the word swing when translated into German, there are also different names for the technique of swing trading itself. Some call it countertrend trading, some mean reversal. Some call it simply Reversion.

All these terms reveal a lot about this trading style. Because the lowest common denominator here is the fact that one is speculating on a market reversal.

And here comes the style break of the previous contribution. Suddenly it is no longer about the time component as in scalping or day trading but about the technique itself. How this fits together, we will find out here.

Confusion of terms in the trading industry

If we look at the 4 trading styles again at a glance, i.e. scalping/daytrading/swingtrading/trend trading, the last two terms (swingading & trend trading) somehow don’t really fit together.

Because I can also trade trends as a daytrader and swings as well. So why this division and where does the confusion come from?

So far we listed the trading styles in a way that the factor time and therefore the holding period of a trade played a big role.

While scalping is about seconds, day trading is about minutes or hours. Now, following this scaling, it would be the turn of trades that extend over several days.

And here we are now at the Swingtrading, although from our point of view the term can not be classified at this point.

Rather, it is better to call swing trading position trading.

And delete the term trend trading without substitution, because trading a trend, that also works on the daily chart as well as on the weekly chart or the 1 minute chart.

With trend trading you mean that you stay positioned longer than the few days of a swing trader.

But the holding period at this point should not require the division into two further trading styles (namely swing trading vs. trend trading).

The correct classification of trading styles in our view is therefore

  • Scalping
  • day trading
  • Position Trading

After 1 and 2 have already been discussed, we continue with 3.

Positionstrading in practice

Position trading is the trading style that plays into the hands of the professional trader.

Because usually a position trader who trades stocks or shares CFDs uses the peculiarity that the stock exchanges are not open around the clock but close overnight.

This standstill has also some disadvantages, for example it makes possible course gaps (Gaps), on which we do not deal here however more near.

Closed stock exchanges mean that calm and distance are brought into trading, which can only please a beginner.

Furthermore, a position trader almost always buys at the opening or closing of the exchange and can set his orders so that he does not have to be present in person to execute them.

A position trader normally does not aim for actions that have to happen intraday.

And if then he takes precautions by using order types like “OCO orders” (one cancles the other) or “if then” orders.

This enables him to place stops, for example, and perhaps combine them with price targets (OCO).

And both orders are only activated when the main buy order is executed (if than).

There are no limits to the possibilities and all options are combined to save the resources of the working trader.

The trading is partially automated and the trades themselves run by themselves anyway. So you can get work, trading and family under one roof.

Because the signals are generated when the markets have closed. Based on the last closing price, new trading opportunities are sought.

And even if one trades at the US stock exchanges, this closing price is fixed at 10 pm of our time. So in the morning, before you go to work, you can do the market screening, calculate position sizes and place trades.

And then go to work calmly, because nothing and nobody demands or requires the personal presence of the trader at that time when the trade starts.

Only one problem remains: the right thinking in connection with letting things run their course. What we will talk about afterwards.

The psychology of letting go

Many traders suffer from a kind of control compulsion. They want to be present when their trades run.

They want to observe and thus have the situation “under control”.

But with it they lie to themselves in the end, because how should one have something under control, which one cannot influence?

Often you hear statements like: “I have to be there when something happens”.

let go while trading

First: what for? Secondly: yes, what is supposed to happen? And even if a lot happens, what should you do except stick to your plan?

And the plan should be automated anyway, besides the fact that it was chosen wisely. See the order techniques described above, which of course can also be used for day trading.

Note: scalping really requires permanent presence. But with day trading it looks already different. Anyway, position trading is a technique that can be completely delegated to the technique.

But before we wipe the observing so quickly to the side. Let’s think about what you can do when you observe a trade. You can react.

But what is the right decision if you don’t know what will happen in the future? Get out now or let it go? Follow up with a stop or not? Get in now or later?

Can there be an answer that is right? Can one really make mistakes here? Yes and no.

Yes – but only if you do not stick to your plan.

No – because you only know what would have been right when it is too late.

Yes – you can make mistakes if you use a trading plan that does not work at all.

No – if you follow a trading plan that works, but does not work in this particular trade.

Trading method

And so one could continue this endlessly with the yes and no game.

Trading is not about making the right decisions in a single trade. It is about developing a trading system that works at the bottom line.

And in which the individual trade has no meaning. And with it, the desire to observe and control becomes obsolete. Because it is a waste of time and also leads to mistakes. To rash actions, which one usually regrets afterwards.

Now let’s come to a real definition of what swing trading actually means and see how trading strategies can be better classified than by the holding period, as we did at the beginning (deliberately wrong) (because this is often misrepresented in the trading industry).

The overall trading strategy

Swing trading, which was mentioned at the beginning but deliberately “incidentally” there, means that one is speculating on a market reversal. And that should make us prick up our ears.

Because the legitimate question is: does it make sense? Does the market have to turn around? What if it continues to run in the direction it is already running? So what if prices continue to rise or fall?

Overall trading strategy

A justified objection. Of course, the market can continue to move in the current direction. But it can also turn around. Therefore, trading models in all three trading styles are correctly divided into the following categories:

  • Per Cyclic
  • Anti Cyclic

And in swing trading, where, as is well known and as already written, one always starts with Antizkylisch, one simply falls into the second category.

Per Cyclic, on the other hand, is an entry that follows the currently prevailing trend, which confronts us again with the term trend sequence, which, applied here, suddenly makes sense. Let us now look at both possibilities.

Per Cyclical Entries

If I follow the trend, then I bet on a long trade when prices are rising, i.e. on further rising prices.

It does not matter what my signal is. Whether I enter according to market technique or with indicators. Pro Cyclic means: the stock has risen in the last few days (attention: or in any other time unit) and I now assume that it will continue to rise.

So I buy the winners of the last days (hours, minutes, weeks etc.).

So I assume that the momentum (the power) will continue. And so I enter per cyclical or trend. How long you stay in a position is a completely different question and has nothing to do with the entry itself.

Anticyclical entries

In this category, I am against the prevailing trend.

I buy the losers of the last days (hours, minutes, weeks etc.). The basic idea, in simple terms: it is enough.

That was too much. The stock, for example, has fallen far too much. You now speculate that the price will turn around if you go in long.

And that is swing trading!

Swingtraders thus reach into the falling knife. This is not reckless, but this is how this trading approach works.

Swingtraders go against – hence the name Kontratrend Trading. Or Mean Reversal – return to the mean or to normality. Enough exaggeration. Enough fallen. Now the share should rise again.

Here too: how long one remains positioned now, if one has entered against the trend, has nothing to do with the entry.

That is, as they say, on a completely different page. And now comes the most important question of all. What should you concentrate on, what is better? We will discuss this in the next chapter.

Pros or cons? Or Swingtradig vs. trend

First of all, we would like to point out that it is not important which of the two options suits you best. In trading it does not matter what you like or what you like. It depends on what works better. And since we can’t solve this with thinking, we have to examine it.

To make this clear: every market has its own laws.

And every unit of time also works differently. Maybe if you find out that stocks on the daily chart respond better to procyclical entries than to countercyclical ones, then this tendency can be different for commodities.

Perhaps if you trade currencies better with swings, you might be better off with indices that follow trends.

It is impossible to know this in advance without having checked it. Strictly speaking, this is the first thing a trader needs to do when trading a market.

He needs to know whether he should enter pro or countercyclical. And he has to consider his time unit, because this basic trend can – but does not have to – change from time unit to time unit.

This video shows how to find that out.

Conclusion Swingtrading

Swingtrading is a trading category that is often confused with position trading.

In swing trading, it is not important to hold shares for several days, but rather that the entry is made against the current trend.

The opposite is trend following and breakouts, which have not been discussed here yet, is a subcategory of trend following systems.

Pro or Anti is therefore not a question of personal preference but a question of the chosen target market.

What does it respond better to? Because why maybe act trend following if swing trading would be better?

Or vice versa. Either way, you will only know the answer to the legitimate question of what is better if you subject your target market to a comprehensive test.

And this is the first step for successful trading, no matter which markets or time units you ultimately decide on.

Your next step is our invitation to our free Basic Trading Course, which will tell you the basics of this business.

For example, we talk about the question of the right starting capital as well as the question of what returns are possible in trading.

Take advantage of this temporary offer and immerse yourself with us in the topics of shares, stock exchange & trading. We wish you much success!

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