Investing in stocks isn’t the only way to make money and pursue gains. Swing trading can also be used during a shorter time frame to generate passive income.

What Is Swing Trading?

Swing trading is done to capture gains from stock. It can take place in a day or as long as several weeks. To accomplish this pursuit, a trader will usually rely on technical analysis and analyze the price movement of individual stocks.

Watching short-term price action is usually combined with some type of fundamental analysis in an attempt to capture gains by selling higher than the entry price taken or covering a short at a discount to its entry price. Individuals typically implement this strategy rather than large institutions. Attempting to use this strategy at a large enterprise would be difficult due to a large amount of money they need to put to work consistently.

Right Stocks for Swing Trading

Picking the right stocks for swing trading is essential. Using high-cap or low-cap stocks is acceptable as long as they have good volume and volatility.

These types of stocks typically have enough movement between their highs and lows in a short period for a swing trader to take positions and extract gains. Buying at a specific price and selling higher a few days later might be a trade taken. After booking profits, a reversal pattern might appear, indicating the advantage of taking a short. Knowing how to enter and exit trades requires education and patience.

How to Start Swing Trading?

Opening an account at a stock brokerage is the first step required to start swing trading. The next step to learn how to swing trade is to examine a few strategies and understand how they work.

Practicing them by paper trading should be completed before any money is risked on an actual trade. The third step is to decide how much money a person is willing to risk with this endeavor to protect their capital.

Advantages & Disadvantages of Swing Trading

According to the experts at SoFi, there is” more opportunity for an investor to actively generate income” using a swing trading strategy than by long-term investing. Looking for and taking advantage of specific setups reduces risk and improves the odds of making gains.

They also say “it may be possible for swing traders to avoid some downside” when the stock or overall market takes a dip due to swing trading strategies that only have a trader participating when there’s an opportunity.

The experts at SoFi also point out, “swing trading might not be as time-consuming or as stressful as day trading, but it can certainly be both.” It can also be expensive to attempt this method. “In order to profit, traders will need to out-earn what they are spending to engage in swing trading strategies.”

Common Types of Swing Trading Strategies

A couple of common types of swing trading strategies include channel trading and using the MACD technical analysis tool. Channel traders take positions within a specific range. Swing traders using the MACD will often combine it with moving average convergence and divergence.

Investigating the world of swing trading is worth pursuing. It can be an excellent way to grow wealth and create extra income once the skills to pursue it correctly are learned and implemented.