Swing Trading Guide

Swing Trading

Swing trading is trying to profit from short-term swings in price action in the price of a security from at least one day up to several weeks or months. The goal is to buy low and sell high if taking a long position. If going short, the goal is to sell high and buy low to cover. Swing trading can include shares, options, or futures contracts. Day trading is the process of buying or selling a security within the same trading day. Most day traders are in and out of positions within seconds up to a few minutes. With swing trading, you’re allowing the price action to move over at least several days.

Differences Between Swing Trading vs Day Trading

  • Day traders – in and out of trades within the same day, usually less than a minute
  • Swing traders – in trades for several days up to several weeks
  • Time commitment – day trading requires more daily commitment
  • Start-up costs – more computer hardware is needed for day trading
  • PDT – You need to have at least $25,000 in an account to avoid the PDT rule as a day trader
  • Stress – day trading is more stressful because trading decisions need to be quicker
  • Options – popular swing trading strategy that requires minimum capital
  • Shorting – limitations on brokers to find short locates with day trading
  • Brokers – most brokers are good for swing trading
  • Risk management – important for both trading strategies

Trading the trend is one of the basics of swing trading. By trading the trend, you’re capitalizing on the up and down moves in price. Because you’re holding at least overnight, the daily chart is the best to find the trends. Holding overnight also makes you susceptible to overnight volatility. Any news that comes after hours can affect price and direction. The best market to swing trade is a stable one. You would think that an extreme market to the bullish or bearish side would be best, but it isn’t.

One of the pluses of swing trading is being able to ride a stock up and back down. When the market is in the extreme, whether bullish or bearish, stocks aren’t in the habit is making those up and down moves. 

That might seem surprising. You’d think you’d want that direction. In a bull or bear market, momentum carries the stock in one direction for a long period. Though a stable market gives you those up-and-down moves, you can profit that way.

Up and down price movements keep stocks from getting overextended. If the price of stock keeps rising, it will get too expensive to trade. Take our swing trading course if you need more help getting started.

Swing Trading

Swing Trading Stocks and Options

You can take advantage of two major types of securities for swing trading. They are stocks and options. Options are great for swing trading. You can buy calls and puts depending on the direction of the stock. Calls mean that you believe the stock’s underlying price is going up. Puts mean that you believe the stock’s underlying price is going down.

Stocks are great, too, but not all brokers have shares to short. Put options are the bearish plays, and brokers always have them available. With options, you can trade no matter the direction a stock is going.

The Right Stock

A key to successful swing trading is picking the right stock. The larger cap stocks are great candidates because they’re traded most often. It’s all about supply and demand.

The more the stock is traded, the more the price moves. In an active market, there will be price swings. As a swing trader, you ride the wave up and back down.

Timing Your Moves

It won’t take you long to figure out the market moves at certain times of the day. And this is when money is to be made when swing trading.

From when the market opens at 9:30 a.m. until around 11:30 a.m. EST, the market will have the most trading volume and volatility. This means lots of buyers and sellers so you can get in and out of traders more easily.

I’d be remiss not to mention “power hour” or end-of-day trading. The first and last hours of the day are the most popular to trade.

Pros: Day Trading

  • The potential to make huge profits. One need not look further than Instagram or the stories of 20-year-olds making $10k plus days. The lure of big money is what draws many to day trading. However, this is not reality. Money can be made with the right approach and strategies.
  • Freedom from the 9 to 5. Day trading is a means of getting rid of your 9 to 5 job if you can master the skillset and get a proven trading strategy. It’s important to realize, though, that most day traders fail.
  • Price to learn is affordable. It doesn’t cost much to learn. You can take a day trading course or learn in a trade room, which is a tiny fraction of the cost of paying for college courses.
  • No glass ceiling. Gender, race, education, upbringing, marital status, and hair color it doesn’t matter. Seriously, anyone with passion, desire, perseverance, discipline, and patience can become a day trader.

Cons: Day Trading

  • The potential for huge losses. Think margin; need I say more? It stands to reason if something has huge potential for wins, there can also be a huge potential for losses. But this doesn’t have to be the case if you follow sound risk management principles.
  • Startup and ongoing costs. Like every good craftsman, you must invest in the right tools for your trade. A pro skier with 10-year-old skis…you get the point.
  • No consistent pay. Some days you don’t trade. And this is perfectly normal. Many pro traders don’t trade every day. You need to be ok with this.
  • Can be stressful. The ability to quickly identify and act on trading opportunities when they present themselves can be stressful. Watching screens for hours on end taxes even the best of us. But this doesn’t have to be the case. Even if you pick an hour of the day when the market moves (i.e., first thing or during the end of day power hour), you can learn to become a successful day trader.

Pros: Swing Trading

  • The potential to make huge profits. Just like day trading, swing trading can be lucrative. Sometimes, the stock needs a few weeks to work itself out.
  • Less time commitment. Time is what you have with swing trading. Due to the different trading approaches, you don’t have to be glued to your computer screen daily. You can even maintain a full-time job while you trade on the side. Just limit the time you spend checking your charts at work, haha.
  • Less stress and chance for burnout. You don’t need to be glued to your computer looking for entries and exits and making quick trading decisions.
  • Expensive equipment and data subscription fees are not required. A simple laptop or mobile device will do at times, depending on your swing trading style.

Cons: Swing Trading

  • The potential for huge losses. Holding trades longer can also work against the swing trader. You need to consider external factors that influence the market and can happen after hours. Take a comment or post by an “influencer.” This can impact the market or price of the stock. Even a severe weather event or political tensions can impact the market when swing trading.
  • Higher margin requirements. Generally, maximum leverage is two times one’s capital. Compare this with day trading, where margins are four times one’s capital. This is because positions are held overnight with swing trading.


Swing trading uses time frames that are much longer – you generally hold your securities for several days or weeks. You still have to ensure you’re in a favorable position, but you have some breathing room.

It’s possible to profit from swing trading part-time while holding a full-time job in something else. This flexibility makes it a great option for people who want to learn how to trade profitably without devoting their entire lives to it.

Take, for example, the single dad who works a full-time, Monday- Friday job. He doesn’t have the luxury of watching charts for set-ups in the morning; he has to work. Because of this, swing trading would be a good choice for him because he could have more time to choose his setups rather than day trading.

Swing Trading Rules

Swing trading is a way to get around the PDT rule. The pattern day trader rule means you can only make three day trades within five calendar days. That can catch up with you quickly; before you know it, you’re out of trades for the week. That’s why swing trading is great.

If you buy a stock and hold it at least overnight, you’re not flagged for the PDT rule. By doing that, you can trade as many times as you’d like. 

Options Trading Brokers

COMPANY TradeStation ThinkorSwim Logo Tastytrade Logo
DESCRIPTION Experience TradeStation's professional-grade options trading platform, built for serious traders seeking value and power ThinkorSwim is for more advanced options traders. It features elite tools and lets you monitor the market, plan your strategy, and implement it in one convenient, easy-to-use, integrated place Trade options on stocks, ETFs, and broad-based indices. Trade equity and ETF options online for $1.00 per contract opening commission and $0 commission to close, capped at $10.00 per leg


In swing trading, you can lose more than your initial investment when trading on margin. Unfortunately, margin trading can amplify gains as well as losses. 

Here’s how it is possible to lose more than 100% of your investment in margin trading. Let’s say you have a $10,000 cash account, for example. If you have a margin account, you can access an extra $10,000. This means you have $20,000 to trade with.

But this money isn’t free. The interest fairy will visit you! And you get to pay interest on it at a hefty fee of $425.

Nonetheless, you enter a trade with the full $20,000, purchasing all the shares you can.

If, for whatever reason, the stock plunges to zero.  So that means in addition to losing your entire $10,000 investment, you’re on the hook to your brokerage for $10,000 and the additional $425 in interest. All in, your total loss is $20,425.

Swing trading doesn’t rely so heavily on margin (you don’t have to use it if you don’t want to), so you don’t have to worry about winding up in debt.  

That doesn’t mean swing trading is risk-free (far from it), but there are fewer opportunities to lose money if you use proper risk management.

Swing Trading Strategies

There are many ways to swing trade, and options are one of the most popular. If you’re going to trade options short term, you need to make sure you’re right on with direction because that’s where options bite you. Many times traders start with a small account. They look for an easy trading system indicator to give them a leg up on the competition because trading is competition. Your goal as a new options trader should be to assume as little risk as possible while you get a feel for how trades work.

Buying calls and puts are the easiest to learn but also the riskiest because time isn’t on your side. Implied volatility swinging from the lows to the highs can make directional swing trade entries hard to time. One of the safest swing trading strategies is to trade credit spreads because you can use theta to your advantage. Take our options trading course if you need more help.

Swing Trading Ichimoku

Technical Analysis and Trends

Technical analysis is imperative to follow because you’re holding a stock for more than a day, and you need to know its direction. You can’t make a trade just because someone says it’d be good.

You need to read the charts and see what they’re telling you. Candlesticks will give you a sense of direction, but moving averages, MACD, and RSI can help to paint a complete picture.

Those technical indicators show you when a stock is bullish or bearish. You need to know that to know what to buy. Another important thing to know is where there the trend is headed.

Covered Calls

If you have the cash in your account to buy 100 shares of the equity you intend to swing trade, you can sell a cash-covered put as your entry.

A put option is a contract that the seller writes. This gives the buyer the right but not the obligation to sell 100 shares of equity at a specific price on or before a specific expiration date. The option contract buyer pays the option contract writer a premium for this privilege. This is great because you can get paid to wait for the market to come to you at your planned entry price while reducing your cost basis.

Here is an example. Let’s say that you plan to buy XYZ at a target of $48. It is Monday, and your analysis has you expecting the price to hit your target by Friday, but the current share price is $49.

Looking at the options chain, you find that $48.50 puts expiring on Friday are trading at $0.90. If you sold this put and you were to be assigned, your cost basis would be $47.60 less any broker fees.

This scenario can go two ways.

If it’s 3:00 pm on Friday and your short put looks like it will expire in the money, you can make a choice. You can let it expire, and you will likely be assigned if it is even one penny in the money at market close.

Or you can buy your option back for probably around $0.05, pocket the fruits of time decay, and buy your shares anyway. This will save you assignment fees if your broker charges any and still reduce your cost basis.


Selling cash-covered put options does come with risk. Selling a cash-covered put has downside risk from your strike price less the premium received down to $0. So you may want to think twice before using this strategy on volatile penny stocks.

Going long on a position while selling a covered call will cap your upside and gain the potential to your strike price plus the premium received. Selling a covered call on a dividend stock where the dividend X date is near your expiration date will be susceptible to the early assignment.

When the share price plus the expected dividend amount added together is equal to or greater than the strike price plus the premium, you are likely to be assigned early or before the expiration date.

No big deal; you will not get the dividend. Time decay or “theta” is much higher on weekly options and rapidly increases as the expiration date draws near. Typically selling two weeks out will net much more premium than selling one week out.

Pushing Premium

Selling cash-covered puts is like getting paid to wait for the market to come to you. Selling covered calls is like renting out prime real estate or beachfront property. I refer to selling options as pushing premium.

Like selling any other depreciating asset, the buyer is always at a disadvantage whether the buyer profits from it. Think of it as a consumable product that consumes itself.

Short-term swing trading options traders must monitor their positions closely and are easily overwhelmed when in multiple positions. It’s harder for some to do their job if they are distracted with…life!

We option swing traders have a choice to be the ones selling options rather than buying them. Because of this, we have the advantage of being in a much more passive position and can, therefore, easily be in many positions at a time.

This is extremely beneficial if you are working a job and swing trading. You can check your positions whenever you get a chance and not panic about closing them as long as you are executing your plan and strategy correctly.

Frequently Asked Questions

Swing trading is typically a safer strategy than day trading. However, that’s not always the case. Day trading requires you to make split-second trading decisions, which could cause traders to make poor trades. On the other hand, day traders aren’t in their positions as long as swing traders, which doesn’t open them up to potential black swan events.
Scalping and swing trading can both be profitable trading strategies. If you’re a consistent scalper, you could make as much more or more than a swing trader if you stick to your daily trading plan. It’s typically easier to scalp small gains daily, though, than it is to get bigger gains as a swing trader.

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