Swing Trading – Riding The Wave

A good surfer knows how it works. In order to get the best results, he or she has to know when to enter and exit a wave. Get into a wave too early or too late and you miss the ride. Miss the exit and you could wipe out. This same is true in the stock market where swing trading has the same traits. Considered a cross between day trading and trend following, swing trading suggests that investors hold a stock for a particular period of time, generally between a few days and several weeks, then trade the stock on the basis of its intra-week or intra-month movements.

Not unlike other forms of trading, successful swing trading is dependent on picking the right stocks. The best candidates are usually the large-cap stocks since they are among the most actively traded stocks and their shares will swing between broadly defined high and low extremes. The investor involved in swing trading will ride the wave in one direction for a few days or weeks and then switch to the opposite position when the stock reverses direction.

The Timing Of Swing Trading

Understanding the timing of swing trading requires an understanding of market conditions. Trading during bull or bear markets is different than trading during interim periods. Because of the longer periods of trending in bear and bull markets, the investment strategy of swing trading is different than in times of stock volatility. When the bears or bulls are running, swing trading occurs over weeks and not days since the trends are longer.

What this means is that the best condition for swing trading is when the markets are making very few gains or losses, but they are experiencing a great deal of movement. This allows investors to look at the stock prices and make more trades, since there is a great deal of entry and exit points.

Establishing The Trend

Since the key knowing where to enter or exit a trade depends on understanding the direction of the market, it is important to establish a baseline for your analysis. Most investors use the stock price history that exists in exponential moving averages (EMA). The EMA allows investors who are swing trading to see exactly what a stock is doing over a period that they define. EMA is also used in other investment philosophies such as the Sidus method as investors look for a non-emotional method to evaluate “buying normalcy and selling mania”. This means that for every investor that reacts emotionally to the market, those that are swing trading are looking at the trends and charts and relying in this information to determine the direction that will go. As we have seen all along the way, not reacting emotionally gives investors the freedom to invest wisely.

Investing wisely doesn’t mean that swing trading requires buying at the ultimate low and selling at the ultimate high. While this is the goal of how to invest in stocks, a wise trader with look to be close, but not on the absolute top or bottom of a trend. By not going for the ultimate peaks, swing trading ensures that the investor won’t be damaged by a drastic, unexpected change of direction.


Swing trading is a lot like surfing; catch a wave, ride it until you see it is changing then get out and catch another. The investment timing of swing trading allows investors to do the same thing in the stock market. Using the EMA as a baseline, you can spot directional changes and successfully invest. With swing trading, it’s time to catch a wave!

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