The versatile and effective trading approach for busy people.
HDS is reader-supported and we may receive compensation from affiliate links on this site at no extra cost to you—learn more Please Note: Trading financial instruments, including forex, is risky—please read our risk disclaimer
If you’re new to trading (and even if you’re not), you may be wondering about how much time you need to spend “in front of the screens”.
There’s a lot of talk in the media about “day-trading”, and this is often the picture that comes to mind for an aspiring home-based trader.
Day-trading involves long hours spent in front of live charts with lots of real-time trading decisions that need to be made.
It requires attention on a daily basis and intra-day transactions that need to be finely tuned so that spread and transaction costs don’t eat away profits.
Day-trading requires a big time commitment.
It’s difficult to do for those who are trying to trade while holding down full-time jobs, or if other demands clash with the timing of market sessions.
So, is there another way, a trading approach that requires less time spent in front of screens?
One that allows you to manage your time better between trading and other commitments? One where your results can be just as good, if not better, with fewer (perhaps far fewer) transactions?
Yes, there is—it’s called swing trading.
A versatile, medium-term trading approach
According to Evan Medeiros—a computer scientist turned successful trader—swing trading has two key elements:
- A planned holding period that extends beyond a day
- A goal to capture a single leg (a swing) within a longer-term trend
To apply swing trading, you don’t need to watch the charts throughout the day in order to make intra-day trades. You plan for trades that take longer than a day (sometimes weeks) to play out.
With swing trading, you’re trying to take advantage of medium-term sustained movements within longer-term trends.
It’s a type of trading that lies between short-term (intra-day) and long-term (position-trading) strategies.
Swing trading is also, for the most part, a technical trading approach—chart patterns and price action—rather than a fundamentals-based approach. Although this distinction is more evident in stock trading (eg. chart patterns vs company fundamentals), it applies to other markets such as commodities and forex as well.
The benefits of swing trading
Medeiros believes that swing trading offers the following benefits:
- It’s an active form of trading but with lower stress than day-trading—watching charts for hours each day and trying to make minute-by-minute trade decisions can take its toll, but in swing trading there are fewer trade decisions so you have more time for analysis and reflection
- It makes the most of screen time—the “return on time spent in front of the screen” is much better with swing trading than day-trading
- It allows time-flexibility—you can hold down a day-job as a swing trader (as you don’t need to watch the screens for hours each day) and better manage other time commitments in your life (you can choose when you wish to do your analysis and preparation based on your daily schedule)
By sitting somewhere in between day-trading and position-trading, swing trading allows you to have the “best of both worlds”—an active trading approach that’s flexible with your time
Swing trading is still trading
As with all trading, however, swing trading can be challenging.
While it offers benefits in terms of time-flexibility, it’s still difficult to develop a trading system that works (for you) and that can provide consistent profits.
It takes patience, practice, and a commitment to tried and tested principles for achieving trading success.
And as always, you need to choose a broker that’s reliable, cost-effective, and meets your needs.
With all of this in mind, let’s look at a few swing trading examples as practiced by veteran traders.
Swing trading in practice
Medeiros describes the following simple swing trading strategy that works in pullbacks during uptrends:
- First, establish that price is in an upward trend for the particular instrument (stock, commodity, currency) that you’re trading
- Wait for a close under the 20-period exponential moving average (20EMA)
- Buy the first bar that closes back above the 20EMA and the prior day’s high
- Place a stop at 1 x the average true range (ATR), or below the prior swing low, whichever is larger
- Take half of the trade off at 1.5 x ATR
- Exit the remaining on a close below the prior three daily lows
This is an example, of course, but one that works according to Medeiros.
And as with all trading strategies, just because it has worked in the past, there’s no guarantee that it will work in the future.
But the key is to use this approach as a guide for developing your own swing trading setups.
And in particular, notice how there are clearly defined entry, profit-taking, and exit rules.
As well as, importantly, a built-in risk management rule, given by the initial stop-loss (ie. selling half of the trade at 1.5 x ATR).
Let’s look at how another veteran trader—Michelle Koenig—approaches swing trading.
Koenig is a successful trader with over twenty years of experience.
She is primarily a swing trader and uses a variety of technical indicators and chart patterns to define profitable setups.
Koenig considers the best markets for swing trading to be those that are trending up or down.
During these periods, her general approach to swing trading is as follows:
- Scan the daily charts for specific patterns (eg. a pull-back to a technical level, such as a 200-day moving average)
- Once a pattern is identified, look at 60-minute charts (Koenig’s preferred timeframe) for possible setups—sometimes, looking at a smaller timeframe (say 15-minutes) also helps
- Use a 50-period exponential moving average to help identify trend changes above and below the moving average for possible shorter-term swings—these could result in a 5-10 day successful swing trades
Finally, let’s consider Ivaylo Ivanhoff’s approach to swing trading.
Ivanhoff is a successful trader, professional portfolio manager, and best-selling author of several books (including The 5 Secrets To Highly Profitable Swing Trading).
Ivanhoff exclusively trades US stocks, so his swing trading approach is designed around this market. But the principles can be applied to other markets as well.
His approach is based on the observation that around 80% of the time stocks are in a consolidation phase (ie. neither trending up or down), and are in a trending phase only around 20% of the time.
Ivanhoff avoids taking swing trades during the consolidation phase—these trades are not reliably profitable—focusing only on the trending phases, which requires patience.
His typical holding period for a swing trade is 3 to 10 days, again based on his observations of profitable past trades.
Ivanhoff’s most favored swing trading setup is as follows:
- Identify a stock in a consolidation phase that shows some potential for a breakout—Ivanhoff typically monitors the stock’s industry momentum to guide him on this—this consolidation phase can last for a week or up to several months
- Look for a shorter-term breakout, ie. where the 5-day moving average trends above the 20-day moving average
- Then, look for what Ivanhoff calls a “pivot move”, eg. a 2% move to a new 20-day high
- At this point, enter the swing trade and hold (typically) for 3-10 days
There are other important elements to Ivanhoff’s process, of course, such as position sizing and risk management.
And he pays a lot of attention to factors that can provide an additional edge, such as industry momentum (as mentioned above) and looking for particular situations that favor stronger moves, eg. IPOs.
All considered, Ivanhoff’s general approach described above illustrates the criteria that have worked for him as a successful swing trader over many years.
Swing trading is a mid-way approach between day-trading and longer-term position-trading.
It offers the key benefits of time-flexibility and lower stress when compared with day-trading, particularly as it requires less time in front of trading screens.
Swing trading, like all types of trading, is challenging and requires a sensible, proven approach that offers profit potential.
But it can work, and work well, as many veteran traders have shown over the years.
In this article, we’ve looked at a few examples of effective swing trading approaches—how they’re applied by veteran traders.
So, if you’re an aspiring trader with a busy schedule or a day job and you’re looking to develop your trading skills, then swing trading may be the best approach for you.
Giri Rabindranath is a CFA Charterholder and holds a Master’s degree in Finance. He has over 25 years of professional experience in the financial industry. The views expressed in this article are solely for informational purposes and do not represent financial advice in any way whatsoever.
Risk Disclaimer: Trading CFDs, forex, and other financial instruments, especially if leveraged, is risky. It isn’t suitable for everyone and may result in loss, sometimes substantially more than the initial investment. Depending on the type of instrument, you may not own or have rights to the underlying assets. Past performance is no indication of future performance and tax laws are subject to individual circumstances and are also subject to change at any time. The information on this website is general in nature and doesn’t take into account your personal objectives, financial circumstances, or needs.