In our last lesson we gave an introduction to the three main styles of trading and looked specifically at the advantages and disadvantages of the most popular style of trading, day trading. In today’s lesson we are going to look at the advantages and disadvantages of the second most popular style of trading, swing trading.
Swing trading is generally defined as a style of trading where positions are held for larger gains over multiple days and up to several weeks. Traders who promote this style of trading normally feel that it combines the best of both day trading and position trading. What this means is that these traders feel swing trading gives you a similar ability to amplify gains as day trading does, with the slow pace and lower transaction costs of position trading.
A second advantage that many traders would site about swing trading, is that good swing traders plan their entries and exits in advance and since positions are held for longer than one day this method of trading does not have the same intensity that day trading does. While some traders prefer the intensity of day trading, traders who want a less stressful trading career often opt for swing trading as a result.
I think most traders would agree that the biggest disadvantage to swing trading is the increased risk per trade. Because swing traders hold positions for longer periods of time, their average risk per trade is generally higher than day traders in order to give the position enough breathing room to work. As swing traders hold positions overnight they are also exposed to the overnight risk which we learned about in our lesson on day trading.
Secondly, although swing trading does not require as much work as day trading, it still generally requires more work and resources than position trading, as good swing traders normally follow the markets very closely even when not entering or exiting a trade.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.
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