Swing Trading

The ” swing trading ” is an activity and strategy of financial speculation that consists of making profits using stocks, currencies or financial indices for a much shorter period of time than a normal investment, normally within a period of one to four days.

The strategy is not just to hold a financial position for a short period of time. Its essence is to take advantage of the volatility of the prices of shares or financial securities (previously analyzed by means of an algorithm, or through the fundamental or technical analysis) and make the purchase and sale of these securities in the peaks, low points and points of inflection of prices.

The use of this way of investing is restricted (for technical reasons) to those investors considered as ‘small’ and whose positions do not have a considerable volume or size, since a small position can be ‘discarded’, that is, sold, of way much faster than a large position (one of millions of shares for example). That is why investment funds do not use this strategy, although specialized employees (“traders”) who work for them can do it on a smaller scale, especially for small clients.

To be able to make use of the volatility of the prices with the “swing trading”, the investor must make all his movements of fast way, having even those investors that with tools to make transactions from house close several transactions in a single day.

The difficulty of identifying the peaks and lowest points of a price means that the execution of “swing trading” is not always “perfect”, as it can not always be sold and bought at the highest and lowest price, respectively. However, if small profits are obtained as a result of a consistent strategy and the profits are managed in a controlled manner, there will eventually be compound earnings as a result of sustained successful investments.

The risks involved in “swing trading” are, beyond those inherent in the stock market, those inherent in the statistical tools and algorithms used to calculate when to buy and when to sell. Many times, price drops and their high points are difficult to identify except when they have already happened. That is why “swing trading” requires rigorous methods of analysis to be successful.