Why Swing Trading Offers the Optimal Path to Success in the Financial Markets

Trading success is the end result of getting the “3 M’s” right; Method, Mindset and Money Management. You cannot succeed with only two of the three; you must have all three down pat.

In this lesson, I want to focus on the first M; the Method that will give you the best chance to succeed at trading. You need to understand which method is the best, why it is the best and how you can master it, so let’s get started…

Swing Trading: The retail trader’s only real chance

I won’t lie to you a retail trader of any market really, there are multiple ‘forces’ working against you, which you may or not have been aware of until now. To be honest with you, you are a one-man (or woman) team when you’re a trader, and unless you have access to extremely large sums of money / the ability to withstand large drawdowns, you are not going to last very long if you don’t employ the proper trading method.

The big players in the market, like banks, hedge funds, etc. know where smaller retail traders place their orders and what they typically ‘do’ in the market (buy breakouts, day-trade, etc.). They know all the small-timer strategies and believe it or not, they enjoy taking your money every day in the market. You can’t survive without a stop loss, but they can, or at least they can for much longer than you or I

Swing trading allows you to fit trading in around whatever busy schedule you may have, or if you don’t have a busy schedule it will allow you to make money trading and still enjoy your free time. There’s nothing more boring than having to sit in front of the charts all day, not to mention that it’s bad for your trading and your health.

Swing trading allows you to analyze the markets on your schedule, for short periods of time, because you are focusing on higher time frames as mentioned above. Also, because you are holding your trades for a day or more in most cases, you can enter a trade on a Tuesday let’s say, then go to sleep and wake up a day later and check on your trade. You do not need to sit there all night worrying about your trades, nor should you. An almost ‘magical’ thing happens when you stop paying so much attention to your trades; you start to see better trading results.

People over-complicate their trading by simply being too involved. Swing trading using Gann and Astro time cycle is the best method because it’s complementary to how you should behave in the market because it rewards you for being less involved and taking less trades over time, which is exactly what you need to do if you want to have any chance at success. The take home message here is, swing trading will help you avoid over-trading, and over-trading is the biggest reason why people lose their money trading.

I’m not going to say that your broker ‘wants you to lose’, but I think saying they want you to day-trade is a fair assessment. Why do they want you to day-trade you ask? Well, for one you will generate a lot of fees in the form of spread payments or commissions, and two, you will lose a lot of trades for the reason I discussed in the previous paragraph. In short, day-trading is a fool’s game that sucks people in by appealing to their greedy / impatient desire to make ‘fast money’.

On the opposite end of the trading scale, we have position trading or investing, this is basically long-term buy and hold strategies that whilst they may pay off when you are ready to retire, they are not suitable for anyone looking to make a living as a trader, like you and I.

That brings us to what I call the trading ‘sweet spot’; swing trading. If you don’t already know, here’s what swing trading is: Swing Trading is a method of technical analysis to help you spot strong directional moves in the market that last on average, two to six days. Swing trading allows individual traders like us to exploit the strong short-term moves created by large institutional traders who cannot move in and out of the market as quickly.

What is a ‘swing point’ in the market?

To put this in a little simpler terms, I’m assuming you have looked at a basic price chart before. If you have, you probably noticed that markets don’t move in straight lines for very long. Instead, price will ‘swing’ from high to low points in the market. Especially in a trending market, these chart swing points are critical points on a price chart where we can anticipate a price action signal to form at, and that often provide high-probability entries just before a trend is getting ready to resume.

The chart below shows us what swing high points and swing low points look like. This market was trending higher, so as swing traders we would have looked for an entry near the swing lows…

Swing trading is the art and skill of reading a price chart to anticipate the next ‘swing’ in the market. I use price action trading strategies to find high-probability entries in the market at these swing points, you may see me refer to this as ‘buying weakness’ or ‘buying the dips’ in a rising market and ‘selling strength’ or ‘selling the rallies’ in a falling market. This terminology refers to the general approach that a swing trader uses; buying as a market falls down and hopefully buying the swing low point (or close to it) within an up-trending market, the opposite would be the case for a down trend of course.

Other reasons why you should become a swing trader

Now that we’ve discussed what swing trading is and the main reason why you need to learn it and make it your trading method, let’s discuss some of the other benefits of it.

Daily charts

As I’ve written about at length in other articles; when you trade the daily chart time frame as a swing trader does, you are reaping many benefits compared to those poor souls who still believe scalping a 5-minute chart is the key to success.

One of the reasons why swing trading is such a huge advantage to the retail trader, is that it allows you to skip all the market ‘noise’ of short time frames, like those under the 1-hour chart. Brokers and the big institutional traders WANT smaller retail traders to trade short time frames and day-trade / scalp, because they know they will get your money easily if you do.

Swing trading on higher time frames like the 4 hour and daily allows you to piggy back off the big moves created by the bigger players in the market, and it also allows you to place your stop loss outside of their reach, thus giving you greater ‘staying power’ so that you can stay in the market longer and increase your chances of getting aboard a big, profitable move.

Benifits of Swing Trading

1. Flexibility and Adaptability:

Swing trading thrives on flexibility and adaptability, allowing traders to capitalize on short to medium-term price movements across various asset classes. Unlike rigid strategies that adhere strictly to predetermined criteria, swing trading strategies can be tailored to accommodate changing market conditions, enabling traders to adjust their approach in response to evolving trends and developments. This inherent flexibility empowers traders to exploit opportunities across different market environments, ranging from volatile to range-bound conditions, thereby maximizing their chances of success.

2. Capitalizing on Market Swings:

At the core of swing trading lies the ability to capitalize on market swings, exploiting price fluctuations within established trends. By identifying and entering positions at opportune moments when prices are poised to swing in a favorable direction, swing traders aim to capture substantial gains within relatively short timeframes. This proactive approach to trading allows for the realization of profits while mitigating the inherent risks associated with prolonged exposure to market fluctuations. Moreover, swing trading enables traders to leverage both upward and downward price movements, thereby diversifying their profit potential across bullish and bearish market phases.

3. Risk Management and Stop Loss Strategies:

Successful swing trading hinges on effective risk management strategies and the implementation of disciplined stop-loss orders. Unlike day trading, where positions are typically closed by the end of the trading session, swing traders may hold positions for several days or weeks, exposing them to overnight and weekend risks. To mitigate these risks, swing traders employ stop-loss orders to limit potential losses and protect capital. By adhering to predetermined risk-reward ratios and employing trailing stops to lock in profits, swing traders can safeguard their investments while maximizing profitability over time.

4. Technical Analysis and Market Psychology:

Technical analysis serves as the cornerstone of swing trading, providing traders with valuable insights into price trends, support and resistance levels, and market sentiment. By analyzing price charts and employing technical indicators such as moving averages, stochastic oscillators, and Bollinger Bands, swing traders can identify high-probability trade setups and execute well-timed entry and exit points. Moreover, understanding market psychology plays a crucial role in swing trading success, as traders seek to anticipate the behavior of other market participants and capitalize on prevailing sentiment shifts.

5. Time Efficiency and Lifestyle Compatibility:

Unlike day trading, which demands constant attention and real-time monitoring of price movements, swing trading offers a more time-efficient approach that aligns with traders’ lifestyles and commitments. Swing traders can conduct thorough market analysis and execute trades outside of regular trading hours, allowing them to pursue other interests and occupations without compromising their trading activities. This flexibility appeals to individuals seeking a balanced lifestyle while actively participating in the financial markets, making swing trading an attractive option for part-time and full-time traders alike.

6. Diversification and Portfolio Management:

Swing trading facilitates portfolio diversification by enabling traders to explore opportunities across multiple asset classes and markets. By diversifying their trading strategies and spreading risk across different instruments, such as stocks, currencies, commodities, and indices, swing traders can enhance portfolio resilience and mitigate the impact of adverse market conditions. Furthermore, active portfolio management allows swing traders to capitalize on sector rotations and emerging trends, optimizing returns while minimizing overall portfolio volatility.

7. Continuous Learning and Improvement:

Successful swing trading requires a commitment to continuous learning and skill development. As markets evolve and new trends emerge, traders must adapt their strategies and refine their analytical skills to remain competitive. By staying abreast of market developments, studying historical price data, and honing their technical analysis expertise, swing traders can gain a deeper understanding of market dynamics and enhance their trading proficiency over time. Additionally, leveraging educational resources, attending seminars, and networking with fellow traders can provide valuable insights and perspectives, fostering a culture of continuous improvement and innovation within the swing trading community.

Conclusion:

In conclusion, swing trading offers traders the optimal path to success in the financial markets by combining flexibility, adaptability, and risk management with technical analysis and market psychology. By capitalizing on market swings, employing effective risk management strategies, and embracing a disciplined approach to trading, swing traders can enhance their profitability while minimizing exposure to market volatility. Moreover, the time efficiency and lifestyle compatibility of swing trading appeal to individuals seeking a balanced approach to trading that aligns with their personal and professional commitments. As traders continue to refine their skills, expand their knowledge, and adapt to evolving market conditions, swing trading remains a viable and rewarding strategy for achieving long-term success in the dynamic world of finance.