Swing trading

Swing trading is a short or medium-term trading strategy designed to make a profit out of changes in price. Typically, a position in a financial asset is only held for a number of days before it's sold. It's the ‘swing’ in the asset's price, from one value to another, that gives the trading method its name.

The key is to keep a close eye on the movement in value of various kinds of securities, so that you can get in at a level that's appropriate for you, and get out a short time later with a profit. However, some traders may choose to keep their position open for weeks, depending on their strategy.

Swing trading differs slightly from long-term trading strategies. It is often employed by institutional investors, who tend to hold their assets for many years. These investors look to ride the asset price's ups and downs, only cashing out when the asset’s value has reached an advanced or mature stage, having risen significantly.

What is swing trading?

A swing trade is a method by which a trader can look to capture efficient, shorter-term profits, given the typically narrow timeframes these trades are open, and the relative ease with which they can be set up and managed. Swing traders must carefully analyse price charts and other data in order to identify movements in an asset’s value. Thus, traders will be aiming to determine when a price is likely to move next before entering the position, in order to capture any potential profit from the respective move.

This means swing traders must familiarise themselves with technical analysis, using these techniques as a set of guiding principles for their decisions. They should also have an understanding of fundamental analysis, examining the asset’s fundamentals to support their technical evaluation.

Swing trading strategies

A swing trading strategy involves traders ‘buying’ a security when they suspect that the market will rise, or ‘selling’ an asset when they suspect that the price will fall. Swing traders can take advantage of the market’s fluctuations as the price swings back and forth, from an overbought to oversold state.

Price action strategy for swing trading

Price action is a strategy that involves monitoring price charts and historical data without the use of technical indicators. As swing trading is a form of short-term trading, it is essential that traders are experienced in the analysis of price charts and trending waves in order to determine appropriate entry and exit points. By monitoring swing highs and swing lows on candlestick charts, price action traders can spot patterns, including trends and reversals, which may help to give them more knowledge of the markets and whether there may be a potential reversal in trend.

Swing trading forex

Due to inherent fluctuations in many of the world's currencies, some traders develop forex swing trading strategies to benefit from crashes. These can be the result of economic or political instability in one or several countries. For instance, traders can buy low and then sell when the value of currencies rise as they recover, perhaps supported by national central banks or international lenders. Learn more about forex trading.

How to swing trade stocks

Swing traders will try to capture upswings and downswings in the stock market when there is differing price action. Swing trading is particularly effective in the share market due to its volatility and the way it is affected by many economic indicators and news announcements. Read our guide to five effective strategies for swing trading stocks to gain further insight.

Swing trading on margin

When swing trading on our platform, traders are required to trade using margin, also referred to as leverage. This means that you only need to deposit a percentage of the full value of the trade to open a position and gain exposure to the financial markets. The margin requirement will vary depending on the asset that you want to trade, but can start from as little as 3.3%. Choosing to keep the position open overnight on margin positions will also mean that traders may have to pay a holding cost, depending on the direction of their trade and the applicable holding rate.

We offer spread bets and CFDs, which are leveraged products that you can use with a range of short and long-term trading strategies, including swing trading. This is useful for traders who want exposure to a larger position size, but it is important to remember that profits and losses are equally magnified. If the market moves in the opposite direction to your position, this will result in a much larger loss of capital, as it will reflect the full value of the position, rather than just the margin requirement.

Swing trade on 10,000+ financial assets

Technical indicators for swing trading

Relative strength index (RSI) is a popular momentum oscillator that is used to determine the future direction of a market, and to see whether an asset is overbought or oversold. The default period for this indicator is 14 days but can be shortened according to each trading strategy, in particular for swing trading.
Simple moving average (SMA) is perhaps the most popular technical indicator for identifying trends. It is customisable over different time horizons, therefore swing trading using moving averages can be used for both short and long-term trading strategies.
Moving average convergence divergence (MACD) is used to identify new trends on price charts and decipher whether they are more bullish or bearish. It is a momentum indicator that calculates the strength and momentum of a trend within a financial market.

Swing trading vs day trading

Swing trading is seen as more of a medium-term trading strategy, whereas day trading applies only to the short-term. Whereas swing traders could hold their positions for days or weeks at a time, day traders only buy and sell assets with the aim of closing their positions before the end of each day. Therefore, unlike day traders and scalpers, it is less crucial for swing traders to stay glued to their screens as you don’t need to constantly monitor quick price movements.

Swing traders need to be aware of changing trends over a few days or weeks, as opposed to the small price movements over minutes or seconds. This means staying up to date with market sentiment and economic news to have an idea of what direction the market might be heading. Having an understanding of technical indicators on price charts is what informs a trader when to enter and exit a position. The freedom of swing trading is why it’s one of the most popular strategies in use. Swing traders need to have the ability to quickly scrutinise charts and data, and use historical information to know exactly when to buy or sell. Less experienced traders might find it hard to master this skill, while professional traders may have the expertise to profit from it. It's not always possible though to get in and out of large volumes of assets quickly.

Swing vs position trading

The main difference between swing trading and position trading is the time that the financial asset is held for. Whereas swing trading aims to capture the up-swings and down-swings in price for a short period of time, often for a number of days or weeks, position trading involves a longer timeframe. Position traders tend to buy assets and hold them for several months or even years, depending on the trend direction.

How to swing trade

Swing trading is available through our derivative products, so read about spread betting vs CFDs to see which product is best for you. In particular, spread betting is our most popular product and allows traders to trade tax-free* in the UK. By opening a live account, you will have access to our spread betting chart forum, stock market data and a range of exclusive trading tools, where traders of all experience levels can share information about the financial markets, including tips and strategies for swing trading.

To start swing trading now, open a live account to deposit funds and pick the asset that you want to trade on.
Alternatively, you can open a demo account to practise your swing trading strategies with £10,000 of virtual funds.

Swing trading as a part-time job

For day traders, it’s often their full-time job, so they can focus solely on their trades and dedicate more time to improving their strategy, whereas swing traders still need to balance trading with their day job. This is because swing traders do not need to monitor price charts all day for tiny price movements; therefore there is more room to trade at home or on-the-go as a hobby.

Swing trading platform

Our award-winning swing trading platform, Next Generation, comes complete with tips and updates for the financial markets. In particular, swing traders can make the most of our price projection tools, technical indicators and drawing tools in order to display your data as clearly as possible. Price action strategies in swing trading are particularly simple to monitor with our customisable chart types and range of chart timeframes. Familiarise yourself with our online swing trading system by watching our platform trading tutorials.

Swing trading app

You can also practise swing trading strategies using our mobile trading application for both iOS and Android devices. Learn more about the Next Generation mobile app, which comes with customisable trading charts and adaptable layouts. The app can also be used on tablet devices for traders on-the-go.

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Benefits of swing trading

This style of trading is compatible with those who have full-time jobs and can’t dedicate hours each day to trading. This also means that swing traders will have another form of income should they make a loss.

You can set wider stop-loss orders, so this should help reduce the number of positions closing prematurely.
Day traders often need to be able to remain calm and stay focused on their screens for hours each day, which is less important for swing trading as the process happens at a slower pace.
Swing trading can be a more efficient use of capital by holding positions for higher returns, rather than opening new positions each day. However, choosing to do so will mean traders must take holding costs into account.

Drawbacks of swing trading

Traders must have knowledge of technical analysis in order to identify the entry and exit points. While this may come naturally for professional traders, those who are looking to start swing trading may need more practice analysing price charts.
Due to the position being held overnight, or over several nights depending on the trader’s time horizon, you run the risk of gapping. Certain economic indicators can affect an asset's price overnight.
Holding the position for a longer period of time may result in larger profits, but it can also result in larger losses, due to the use of leverage.
Swing trading requires patience and could still be a high-stress environment if a trade begins to move in an unfavourable direction.

Summary: can you make a living swing trading?

Swing trading is an alternative strategy for those who favour short-term trading, but can’t dedicate hours to trading every day. While it requires a comprehensive understanding of technical analysis, it can result in more efficient returns, relative to day trading. As with any form of trading, there will be risks involved. Swing traders, particularly those just starting out, should ensure they have a solid understanding of the technical indicators, as well as the market fundamentals, that are informing their trade decisions. A swing trader should also strongly consider having a stop-loss in place, should there be breaking news that affects the market direction they’re favouring. Read more about money management in swing trading.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.