Advantages & Disadvantages of Swing Trading  

Advantages & Disadvantages of Swing Trading  
July 31, 2020 Market Traders Institute

If long-term trading isn’t providing you with the returns (or excitement) you desire, swing trading may be the answer you’re looking for. But this style of trading, which focuses on multiple short-term transactions that you hold anywhere from a day or two to a couple of weeks, isn’t without some risk. Learn more about the advantages and disadvantages of swing trading to determine whether this style is the right choice for you.

Advantages of Swing Trading

One of the biggest advantages of swing trading is the ability to identify and capitalize on major market moves. When you’re invested for the long-term, you may not pay attention to what the market does on any given day; however, swing traders that jump in (and out) at the right time can significantly profit from just a day or two of market movement. And with the help of stop losses, you’ll be able to place larger positions by minimizing the amount you could potentially lose on a trade gone bad.

Another major advantage of swing trading is the existence of clear boundaries and stopping points. For long-term traders, having to maintain a commitment to the fundamentals can mean weathering some major market downturns in the name of potential future profitability. Swing traders, on the other hand, don’t need to wait around for a trade to recover. Instead, by relying on stop losses and avoiding putting too many proverbial eggs into one basket, swing traders can quickly step away from less-lucrative trades and move on to the next big thing.

Disadvantages of Swing Trading

Like any type of active trading, swing trading isn’t for the faint of heart. Not only must you be familiar with technical analysis and able to make split-second trading decisions, but you’ll also need to be willing to spend a significant portion of the day behind the computer to ensure that you’re able to enter and exit at the prescribed points. Swing trading in the forex markets can be particularly challenging; these markets never sleep, so you’ll need to focus on fundamentals, technicals, and even current events to maintain your competitive edge.

As a corollary to this, you’ll need to accept the risk of occasional losses. Even the most experienced and market-savvy swing trader doesn’t choose winners every time, and if you don’t have the stomach for losses, you may want to opt for a different trading style.

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