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Swing trading is a medium-term trading style that is a good compromise between day trading and longer-term trading. Swing trading can be very profitable because it has the potential to find long trades driven by long trends that can last for a long time.
What Is Swing Trading?
Swing trading is a style of trading where traders attempt to profit from trades that last anywhere from a few days to a week or two. This style of trading is slower and more analytical than day trading, but not as patient and slow-moving as longer-term fundamental traders.
Therefore, it is a good compromise between the two and requires fewer trades. However, these fewer trades are offset by higher potential profits.
What Is The Easiest & Still Profitable Strategy For Stock Swing Trading?
One of the easiest, but still profitable, strategies for swing trading is two moving averages plotted on top of each other. When the shorter-term MA crosses above the longer-term MA, it is indicative of an uptrend. Conversely, when the shorter-term MA crosses under the longer-term MA, it suggests a downtrend. Opinions vary on the number of periods to use, but for stock trading, a moving average of 10 periods (MA10) and a moving average of 20 periods (MA20) are typically used.
In the chart below, the MA10 crosses above the MA20 sometime between April 6th and April 7th. If we had entered the trade at market open, we would have gone into the negative with that nasty red candle. But after that, the price continues upward nicely. At the time this chart was pulled up, it would still be earning money if you had not closed it.
To trade the chart below, once the cross occurred, you could enter the trade at market open. Set the stop loss below the area of the cross. The best way to handle the take profit is with a trailing stop after you are satisfied with the profits. This ensures that you will not lose your profits beyond that. Many swing traders, though being inclined to close out trades after a week or two, will let their profitable trades continue to run. As you can see, this trade would still be running.
Here's another example of a profitable trade using the MA10/MA20 crossover strategy. Assuming we set our stop loss below the cross, even though the April 7th gaps up and continues into a spike that exhausts itself, the price never falls below the area of the crossover. This trade would still be going as well.
Conclusion
Swing trading is a good trading style for those who do not have the ability to babysit the market looking for opportunities that appear and disappear within a short period of time.
Moving average crossover strategies are profitable for swing trading because they capture trends as they are beginning. While swing traders typically limit their trades to a week or two, the potential exists for trades that continue to be profitable for a very long time.
These are typically kept open until the profits reach a satisfactory level and then the position is closed or a trailing stop order is applied to prevent too much loss.
The only disadvantage of this strategy is a ranging market. If you will create an effective filter that will avoid ranging markets, you will be on the best way to make some good money with this trading system.
