Investing

Getting Active: Taking a Swing at Swing Trading in 2023

Liam Gibson

Published: June 21, 2023 10:53 pm

Stocks have bounced back with a vengeance in recent weeks. Investors are throwing caution to the wind as they buy up equities, boosted by booming exuberance for AI.

The bulls have charged through the wall of worry about the economy’s health, triggering a melt-up in asset prices.

The broad-based indices S&P 500 is pumping. Trading at around 4,400 points, the broad-based index is up 3% on the second week of June, its biggest weekly gain since March.

What was called a “skinny bull” – (so named for its highly concentrated in just half a dozen tech companies) is now putting on muscle. Other sectors beyond tech are moving up too. Last week, small-caps outperformed, with the Russell 2000 adding 1.9% and The Dow Jones Industrial Average increasing 0.3% to the tech-heavy Nasdaq’s 0.1% gain.

It’s unclear whether the upward trend will hold or the market may stage a major retreat. One thing is clear – the months of the market crab walking sideways are over. This momentum raises the stakes for short-term retail investors, who make hay out of short-term market movements.

As a technique, swing traders aim to capture upward price swings by holding stocks for between a day to several weeks. They utilize technical analysis to take strategic positions, hoping to sell at the peak of a price wave.

This article will look at the fundamentals of swing trading, how to best get started in the space, and consider some expert opinions on the unique strategy.

Swing for The Fences

It’s not easy to succeed in active investing, and even seasoned Wall Street money managers often need help to meet, and beat, market averages. According to an analysis by Morningstar, only a small minority – a mere 11% – of large-cap fund managers outperformed passive benchmarks in the decade between 2011 and 2021.

Many novices can’t handle the intense psychological rollercoaster ride of active trading. From peak to trough, it’s a mixed bag of emotions, with fear, greed, and everything in between. Then there are those trading platforms that look like a virtual maze from another dimension – making sense of all those numbers and lines takes time. It can certainly be overwhelming.

Yet, rather than shooting from the hip and making hourly, high-stakes trades, swing trading espouses a measured approach with well-defined stop losses and strike prices. This can make it ideal for newcomers just getting their toes wet in the market.

Not only that, swing trading is ideally suited for retail rather than institutional investors. Most investment firms’ market positions are on too grand a scale for them, and like cumbersome tanker ships, they have trouble exiting on a time-sensitive basis. Market liquidity risk is an issue here too, and can cause price instability when firms with large allocations try to sell a given equity.

Yet solo traders, like small jet skis, have the agility to get in and out of positions with ease and at speed.

“In the world of trading, swing trading is like the sweet spot between the high-speed thrill ride of day trading and the marathon of value investing,” says Jorey Bernstein, CEO of Bernstein Private Wealth Management.

“It’s a solid choice for people who want to dive deeper into active trading but can’t-or don’t want to-be tied to a screen all day, every day. But don’t be fooled-it still needs you to be sharp on spotting trends and cool-headed with risk.”

There are trade alert services that let beginning traders know when a key stock is showing technical signals that it may be poised for a price swing.

“Tools like alert services or following the veterans can give you a boost, especially when you’re new to the game,” says Bernstein. “But remember, it’s not just about copying moves-it’s about understanding why those moves are being made and making a strategy that works for you. Because, in trading, there’s no one-size-fits-all. You’ve got to carve your own path.”

Other Options

Swing trades with stocks are ideal for cutting one’s trading teeth. For those who want to up the stakes and take on greater risk for potentially more significant gains, they can try the same swing trading with options.

Like with swing trading alerts, there are options picking services. Some are back-tested, statistically researched, and boast triple-figure historical average annual returns. Traders finding their feet with options and needing more confidence to develop their own strategy may find value in leveraging these resources.

Yet as in all investing, success in swing trading requires discipline, patience, and prudent risk management. The name of the game might be on short-term market fluctuation, but staying the course inevitably requires a long-term focus.

By identifying trends, employing technical analysis tools, and setting clear entry and exit positions, swing traders strive to achieve consistent profits. However, it is essential to remember that this trading style carries inherent risks. No matter how historically successful, no metric-based trade pattern can guarantee future returns. Becoming a successful swing trader requires adaptability, ongoing learning, and the ability to adjust strategies in response to dynamic market conditions swiftly.

This article was produced and syndicated by Wealth of Geeks.