What is swing trading and the best strategies to make money from it in 2023?

swing trading secrets
swing trading secrets

In the trading world there are basically four types of trading and swing trading is one of such kinds. You must be very sure that you are trading and not investing. For this you must maintain a stop loss.

If you don’t maintain a stop loss and you have taken trade in a good company then you would definitely down average it. So, it’s always better to have a stop loss while you are doing a swing trading.

What is Swing trading?

Swing trading is a kind of tension free trading you don’t have to sit all day on the computer watching the screen. A person doing swing trading is known as swing trader.

In the swing trading you buy the stock at the demand zone and hold the stocks until the supply zone is reached and sell the stocks. It is one type of swing trading.

In the other types such as buying the stock at the breakout and selling it at target with proper risk reward ratio.

Swing trading vs intraday trading

In the intraday trading you have to buy and sell the stock on the same day itself. While in the swing trade you can hold the stocks for 5 to 10 days or until they reach their target.

Swing trading vs positional trading

Swing trading is the little brother of positional trading. In the swing trade you hold the stocks for 5-10 days while in positional trading you hold the stock for several weeks to months or even years.

Swing trading rules

 Rules can be modified According to your trading strategies. But there are some basic rules we should keep in mind before trading.

  1. If we are trading weather, it is intraday or swing trading we should always maintain a stop loss for worth scenarios. Like if overnight some bad news comes for the stocks, you are trading and the next morning if it drops heavily then you would be saved by the stop loss and with some profit.
  2. The next rule which you should keep in mind is the amount you are risking for the trade. You cannot risk the whole amount in one trade.
swing trading secrets
swing trading secrets

Swing trading expected returns

Bare minimum you can get a return of 6 to 10 % on a trade. If you take 3 or 2 trades in a month then you can make a return of approx. 25 to 30 % on your trading capital.

Best time frame for swing trading

The best time frame for swing trading is Daily. You can also do it in 1 hour time frame, but the volatility is much more in a lower time frame and if you have the tendency to look trades then you can sell in FOMO by seeing loss on the screen.

So, it is advisable that if you put the stop loss then you will know how much loss you can do in a trade and it will keep you mentally stable.

Before executing a trade always first know your losses rather than profit.

Which shares are best for swing trading?

Shares which give a big movement are good for swing trading purposes. As long as you have equity, you can only buy but you can’t sell. The market will not always go up, but will you do if it goes down.

If you have to do selling also then you have to find derivatives (futures and options) for such.

Risk per trade on swing trading

Risk per trade is a very important factor as it will decide the quantity you have to buy and your target. Example-

You have 50,000 rs and you want to buy the share of 5000 for swing trading. And in that, you are also taking a risk of 1000 in 5000.

CMP – 130 rs

Stop loss – 20

Quantity – 1000/20 = 50

Target = 1:2, (20*2 =40), 130+40 = 150

Profit = 150*50 = 7500 (+2500) aur agar stop loss hota toh 1000 rs jaate

For 1:3 target ka aap calculate kar k comment kare

This is how you calculate your risk per trade.

Candlestick pattern for swing trading

For swing trading you should try to spot reversal patterns. Reversal patterns are W, M, hammer candlestick pattern and shooting star patterns, when the trend is about to reverse and if you find these patterns near the demand or supply zone, you have more chances of winning the trade.

Examples of reversal patterns at demand zone – hammer, bullish harami, bullish engulfing, morning star and many more.

Best chart pattern for swing trading

There are two types of chart patterns one is reversal chart pattern and the second is continuation chart pattern, now what you have to do is you can select some selected pattern from both the chart patterns which appear repeatedly on the chart and trade it.

Reversal chart pattern –

  1. Double top
  2. Double bottom
  3. Head and shoulder
  4. Rounding bottom

Continuation chart patterns

  1. Bullish / bearish rectangle
  2.  Ascending/ descending triangle
  3. Flag pattern

By the way, apart from these, there are many other chart patterns. Remember only a few, but remember them well. Once you build up confidence by trading these patterns, then you can learn about new patterns.

Advantages of Swing trading

  1. If you have made up your mind for swing trading, then you would not want to sit on the screen the whole time, just select the stock on the weekend and execute the trade as per your set-up. This is your biggest advantage.

You will not have to sit the whole time watching the screen, you can do your other work by putting the target and stop loss order on the trade.

  • By trading this way, you can make 5 to 7% profit from one trade, and if you do 2 or 3 trades a month, you can make 20-25% returns on your capital.

Disadvantages of Swing trading

  1. It is not at all necessary that when you have taken the trade it will go up. If any bad news comes for that company, no one will be able to stop its stock from falling. If you don’t put the stop-loss on it, then it can free-fall and you will not be able to guess what just happened wrong with the stock.
  2. Sometimes it can test your patience. Many times, it happens that a stock keeps moving in the same price range for a few days and you get fed up and leave the trade in middle and after 2 days it will go up.

How to swing trade with the help of options?

You can plan your swing trades with the help of options data but the question arises how? Let’s see step by step-

  1. You have to search the option chain on Google, then click on the first site that comes after that.
  2. After opening the site, go to the select symbol and select the stock whose data you want to see.
  3. In that you will see the call data on the left side and the Put data on the right side.
  4. You have to check the OI (Open Interest) data, on the left side if it is high then it will act as a resistance and on the right side where OI is be high, it will act as a Support, but it does not mean that resistance and support will not be broken.

You have to execute your trade by seeing the trend reversal candlestick pattern on resistance and support.

Swing trading as a career

You can only opt for swing trading as a career, if you can make continuous good money from it.

If you are able to generate greater money than your current work, then only choose it as a career otherwise do it as a side hustle and later on when you are able to make money, then select it as a full time.

Swing trading success rate

If you have a good set-up for swing trading with a risk reward of 1:3 or 1:5 then you can surely have a high success rate. Swing trading success rate will also vary from person to person.

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