Real-World Example of Swing Trade in App

Using a historical example, the chart above shows a period where Apple (AAPL) had a strong price move higher. This was followed by a small cup and handle pattern which often signals a continuation of the price rise if the stock moves above the high of the handle.

In this case:

• The price does rise above the handle, triggering a possible buy near $192.70.
• One possible place to put a stop loss is below the handle, marked by the rectangle, near $187.50.
• Based on the entry and stop-loss, the estimated risk for the trade is $5.20 per share ($192.70 – $187.50).
• If looking for a potential reward that is at least twice the risk, any price above $203.10 ($192.70 + (2 * $5.20) will provide this.

Aside from a risk/reward, the trader could also utilize other exit methods, such as waiting for the price to make a new low. With this method, an exit signal wasn’t given until $216.46, when the price dropped below the prior pullback low. This method would have resulted in a profit of $23.76 per share. Thought of another way—a 12% profit in exchange for less than 3% risk. This swing trade took approximately two months.

Other exit methods could be when the price crosses below a moving average (not shown), or when an indicator such as the stochastic oscillator crosses its signal line.

What Are the “Swings” in Swing Trading?

Swing trading tries to identify entry and exit points into a security on the basis of its intra-week or intra-month oscillations, between cycles of optimism and pessimism.

How Does Swing Trading Differ From Day Trading?

Day trading, as the name suggests, involves making dozens of trades in a single day, based on technical analysis and sophisticated charting systems. Day trading seeks to scalp small profits multiple times a day, not holding any trades overnight. Swing traders do not close their positions on a daily basis and instead may hold onto them for weeks or months, or even longer. Swing traders will also tend to incorporate both technical and fundamental analysis.

What Are Some Indicators or Tools Used by Swing Traders?

Swing traders will use tools like moving averages overlaid on daily or weekly candlestick charts, momentum indicators, price range tools, and measures of market sentiment. Swing traders are also on the lookout for technical patterns like the head-and-shoulders and cup-and-handle.

Which Types of Securities Are Best-Suited for Swing Trading?

While a swing trader can enjoy success in any number of securities, the best candidates tend to be large-cap stocks, which are among the most actively traded stocks on the major exchanges. In an active market, these stocks will often swing between broadly defined high and low points, and the swing trader will ride the wave in one direction for a couple of days or weeks and then switch to the opposite side of the trade when the stock reverses direction. Swing trades are also viable in actively traded commodities and forex markets.