Swing trading stocks has become increasingly popular among home-based investors and beginning swing traders. You can make money from swing trading and the most common way is by mastering it. The more skilled you are, higher are your chances to succeed.
But you have to start somewhere, right? Because of this, we need to clarify persistent misconceptions and give you the right tools for you to start. With experience and training, you’ll come up with your own stock swing trading system.
What is swing trading?
What is swing trading?. Many people confuse swing trading, day trading and buy-and-hold investing. The fact is they are quite different at several levels.
Put it simple, swing trading is to profit from securities’ price movements which, comparatively to day trading or buy-and-hold investing, span a few days to a few weeks — one or two months, at most.
In day trading, securities’ price movements span only one day and traders don’t hold any positions overnight.
What are stocks?
Most of the time stocks take the form of shares of ownership in a corporation. There are two types of stock : common stock and preferred stock.
Common stocks are voting shares which are giving the stockholder the right to vote on matters of the company.
Preferred stocks are a bit different than voting shares in that they don’t carry voting rights. However, they carry priorities over common stocks in the payment of dividends.
That being said, there is a whole lot more to say on the subject so I encourage you to further read about the stock market.
How to swing trading stock
Swing traders rely heavily on different strategies to uncover new opportunities they can profit from. Their choice in regards of strategies largely depends on their temperament and their approach of markets. There are two main strategies swing traders can use : fundamental analysis and technical analysis.
Understanding fundamental analysis
To easiest way to understand what fundamental analysis is, it’s by identifying common questions fundamentalist constantly ask before entering a position.
- Does the company’s value has increased or decreased comparatively to its peers?
- What’s its growth rate? Is it worth the investment?
- What are its return on capital and debt levels?
By constantly posing these questions the fundamental analyst can get an idea on the price of the company’s shares and make appropriate choice based on that
Understanding technical analysis
Technical analysts are skilled in reading a security’ s price chart with volume to accurately determine the likely direction of that security. The technical analyst estimates the direction of a security by analyzing the strength of buyers and sellers on the markets.
Adopting this approach means doing extensive analysis of chart patterns and indicators.
Which one to choose
Most experts agree to say that both strategies should be used in conjunction. Indeed, they complement each other and together, they ensure an throughout analysis of the company’s position on the markets.