Swing Trading: How It Works, Risks and Who It Suits

Swing trading is a style of trading in which you hold a position for several days or a few weeks, trying to capture one price move, a "swing", inside a larger up or down trend. It sits between day trading, where trades open and close within the same day, and longer-term investing, where positions are held for months or years. It asks for less screen time than day trading, but it is still speculation: the price can move against you while you wait, and many people who try short-term trading lose money.

In brief

• Swing trading means holding a position for days or weeks to capture one price move inside a larger trend, rather than closing it the same day.
• Most swing traders read price charts (technical analysis) to choose an entry, a stop loss and a target before they open the trade.
• Because trades stay open overnight, a price can jump past your stop, and the loss can be larger than you planned.
• A well-known study of brokerage accounts found that households that traded most earned clearly less than those that traded least.
• It can suit people who have a written plan, a small and fixed risk per trade and money they can afford to lose, but it never guarantees a result.

In this article · 10 min read

1. What swing trading is, in one sentence
2. How swing trading works, step by step
3. Swing trading compared with other styles
4. What the evidence says about trading often
5. Swing trading crypto: what changes
6. Advantages and limits
7. Where the bot fits
8. How to start, step by step
9. Who it is for
10. Key terms
11. Frequently asked questions
12. Sources

What swing trading is, in one sentence

Swing trading is an approach that aims to profit from price swings lasting days or weeks, usually found with technical analysis. Charles Schwab's education pages describe swing traders as people who hold positions overnight but target shorter-term opportunities than position traders or long-term investors. Technical analysis means studying past prices and charts, such as trend lines and moving averages (the average price over a set number of days), to decide when to enter and exit. There is no official, legal definition of the term, so the holding period varies from source to source: Ledger Academy says traders usually hold from a couple of days to a few weeks, and sometimes a couple of months.

How swing trading works, step by step

The routine is similar for most people who trade this way:

1. Find a market that is trending. The trend is the general direction of the price, up or down, over a period. Many swing traders look at daily charts, where one candle shows one day.
2. Wait for a pullback or a breakout. A pullback is a short move against the trend; a breakout is a move through a level where the price has often stopped before, called support (a floor) or resistance (a ceiling).
3. Decide the exits first. Before opening the trade, you choose a stop loss (an order that closes the position if the price reaches a level you set) and a take profit (an order that closes it at a target price). Our guide to stop loss and take profit explains how to place them.
4. Choose the size. Position sizing means how much money goes into the trade, so that hitting the stop costs an amount you accepted in advance. Our article on risk management in trading covers this.
5. Hold, review, exit. You wait for the stop or the target, and you review the result afterwards.

John Bax's view

In Lazy Investor, Smart Investor, John Bax explains that fundamental analysis focuses on the "why" behind an asset's value, while technical analysis is more concerned with the "when" of price movements. Swing trading lives on the "when" side: it asks about timing, not about whether an asset is worth owning for years. He also writes that preset orders for entry, stop loss and take profit help to take emotion out of trading, but that setting them and walking away is unlikely to give consistent results, because strategies need to be monitored and adjusted as markets change.

Swing trading compared with other styles

Schwab places swing trading between day trading and longer-term position trading, which gives a simple way to compare them:

Day trading is a different activity with its own evidence. The SEC's investor education site, Investor.gov, describes day trading as extremely risky, with the possibility of substantial losses in a very short time. A study by Fernando Chague, Rodrigo De-Losso and Bruno Giovannetti followed people who began day trading in an equity futures market between 2013 and 2015 and persisted for at least 300 days: 97% of them lost money.

What the evidence says about trading often

Swing trading is slower than day trading, but the question "does trading more help?" still applies. Brad Barber and Terrance Odean studied the accounts of tens of thousands of households at a large discount brokerage from February 1991 to January 1997. In their paper, Trading Is Hazardous to Your Wealth, the market index earned 17.9% a year, the average household 16.4% after costs, the households that traded infrequently 18.5%, and the households that traded most 11.4%. These are historical results for stocks, not for crypto, and they say nothing about the future. The point is the pattern: more trading brought more costs and, on average, a worse result.

In our experience, the traders who last are rarely the ones who place the most orders; they are the ones who wait for a setup that matches their rules and are willing to let a trade stay unopened.

Swing trading crypto: what changes

The method is the same in crypto, but some details differ:

• Volatility. The US Commodity Futures Trading Commission (CFTC) notes that virtual currencies are more volatile than traditional currencies, and that profits and losses linked to this volatility are amplified in margined futures contracts. A swing that looks calm on a daily chart can hide large moves inside the day.
• No closing bell. Crypto exchanges usually stay open at all hours, so a price can move while you sleep, and a stop loss only works if it is placed as a real order.
• Leverage. Leverage lets you control a position larger than your money, and it multiplies losses as well as gains. The European Securities and Markets Authority (ESMA) noted in March 2018 that between 74% and 89% of retail accounts typically lose money on contracts for difference, leveraged contracts on an asset's price. Our guide to crypto futures trading explains margin and liquidation.
• Funding costs. On perpetual futures, holding a position over several days means paying or receiving the funding rate, a periodic payment between buyers and sellers. See perpetual futures and the funding rate.

Advantages and limits

Swing trading has real attractions. It needs fewer decisions than day trading, it can fit around a job, and a slower pace leaves time to think. The limits are just as real:

• Overnight and weekend risk. Schwab warns that overnight gaps and failed setups can produce losses. The SEC's investor bulletin on stop orders adds that a stop price is not a guaranteed execution price: the order becomes a market order, which can execute well away from the stop.
• Losing trades are normal. A rule-based approach still loses often; what matters is whether the losses are small and planned.
• Emotion. Watching an open position for days tests patience. Our article on trading psychology covers fear of missing out and discipline.
• Not proven. A strategy that looked good on past charts may fail later. See how to backtest a trading strategy and why past results do not guarantee future ones.

Where the bot fits

Doing this by hand takes discipline: many people widen a stop when a trade goes wrong. Crypto Go Bot, which we built, is one way to apply fixed rules. According to the bot's page, it runs on your own server and trades your own Kraken account, and take profit and stop loss both sit on Kraken, enforced by the exchange. Beside each setting you can see the value we use ourselves, and you can keep it or set your own. It is not a swing trading tool in particular, losing trades still happen, and nothing removes the risk. You can read how it works in our crypto trading bot overview.

How to start, step by step

1. Practise on paper first. Mark entries, stops and targets on a chart and record the result for a few weeks, without real money.
2. Write the plan. Entry rule, stop, target, size, and the conditions in which you will not trade.
3. Risk a small, fixed amount per trade. Use only money you can afford to lose.
4. Start with no leverage. Add it, if ever, only once you understand liquidation.
5. Keep a journal. Note why you entered, what happened and what you would change.
6. Review after 20 or 30 trades, not after two.

Checklist before each trade

• I can say in one sentence why I am entering.
• My stop loss and my target are decided before I click.
• If the stop is hit, the loss is one I accepted.
• I know the fees and, on futures, the funding rate.
• I have not entered because of fear of missing out.

Who it is for

Swing trading is a way of timing trades that suits some situations better than others.

• Employee with limited time: checking daily charts once or twice a day fits around a job, as long as stops are placed as real orders so the position is protected while you are away.
• Beginner who wants to learn the basics of trading: a slower pace, with small amounts and a journal, lets you see how stops, targets and position size work before mistakes become costly.
• Investor with a long-term portfolio: a small separate sum for shorter trades can satisfy the wish to be active, as long as the core holdings stay untouched and the sum is one you can lose.
• Person who prefers rules to feelings: writing down every entry and exit condition, or letting software apply them, helps if you tend to move stops or chase prices.

Key terms

• Swing: a price move inside a larger trend that lasts days or weeks.
• Technical analysis: the study of past prices and charts to judge when to enter and exit.
• Pullback: a short move against the trend, often used as an entry point.
• Support and resistance: price levels where the price has often stopped or turned, a floor and a ceiling.
• Stop loss: an order that closes a position when the price reaches a level you chose, to limit the loss.
• Position sizing: deciding how much money goes into a trade so that a stop costs an amount you accepted in advance.

Frequently asked questions

What is swing trading?

It is a style of trading in which positions are held for days or a few weeks to capture a price move inside a trend. It is shorter than investing and longer than day trading.

How long do swing trades last?

There is no official rule. Most sources say from a couple of days to a few weeks, and some traders hold for a couple of months.

Is swing trading better than day trading?

It is different, not automatically better. It needs fewer trades and less screen time, but positions stay open overnight, so gaps and fast moves can hurt. Both involve a high risk of losing money.

Can you swing trade crypto?

Yes, many people do, usually on daily charts. Crypto is volatile and exchanges usually stay open at all hours, so stop loss orders and a small position size matter even more.

Do I need leverage for swing trading?

No. Leverage multiplies losses as well as gains, and funding costs can add up when you hold for days. Many beginners start without it.

Which indicators do swing traders use?

Common tools include moving averages, support and resistance levels and momentum indicators. No indicator predicts the price, so test any rule on past data and with small amounts first.

Can a bot do swing trading?

A bot can apply fixed rules such as stops and targets without emotion, but it does not remove the risk. Check what it controls, start small and expect losing trades.

Sources

• Wikipedia, Swing trading
• Charles Schwab, Swing trading strategies
• Barber, B. and Odean, T., Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors, The Journal of Finance, 2000
• Chague, F., De-Losso, R. and Giovannetti, B., Day Trading for a Living?, FGV EESP working paper
• SEC, Investor.gov, Day Trading
• SEC, Investor.gov, Stop, Stop-Limit, and Trailing Stop Orders – Investor Bulletin
• ESMA, ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors, March 2018
• CFTC, Customer Advisory: Understand the Risks of Virtual Currency Trading
• Ledger Academy, What is swing trading?