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What is swing trading?
Swing trading is a trading style that focuses on trying to capture a portion of a larger move. It is based on the assumption that asset prices rarely move in a straight line, and that the minor oscillations in the price movements of markets can provide an opportunity for profit. Swing traders focus on the points where a market changes direction, entering and exiting their trades at these ‘swings’.
Swing trading sits between day trading and trend trading. While trend traders will look to take advantage of a long-term trend, ignoring the oscillations that take place within that trend, a swing trader is focused on those oscillations.
A number of definitions for swing trading will suggest that a swing trade is held overnight, or for a couple of days to a couple of weeks. However, the trade duration is relative to the timeframe of the trend, which could be as short as 30 minutes, or even less. Swing trading is about trading short-term legs of longer-term trends.
How swing trading works
Swing trading works by identifying profitable times to enter a trade based on two different types of swings: a ‘swing low’ or a ‘swing high’.
A swing low is a term used to refer to a major price low, while a swing high is a term used to highlight a major price high. A swing trader is concerned with trying to capture the price movements between these major lows and highs
The chart below shows a price chart in an uptrend, with the swing highs and swing lows highlighted.