Stress Free Finance

Rather than focusing on company research or investigations of a particular sector, the swing trader will look at short term pricing, and will make decisions to buy or sell a stock based on weekly or monthly prices. Such traders will only hold onto a stock for a short period of time, usually not more than a couple of weeks, and thus do not need to spend time getting to know the intimate details of a company.

A strategy of swing traders is to take advantage of general market fluctuations. There are periods of time when the market can be expected to rise of fall based on the sentiments of the general population of shareholders. In general, during certain periods, one can see that the general drift of markets is going in a particular direction, so swing traders can use this to their advantage by investing for a short time in large-cap, established companies that will likely float along with the general direction of the market.

There are two distinct ways in which and investor can make a profit off stock investments. These two are dividends, and capital appreciation. Anyone involved in swing trading will have determined that they are not interested in gaining profit off of dividend accrual, as they invest for short time periods, which in most cases does not allow for dividend bonuses to be made.

One sector where traders who are involved in short-term trading are likely to lose money is capital-gains tax. At present, the tax systems favors long term investors. If profits are booked on swing trading stocks, the tax calculated on the capital gains on realization of profits is significantly higher.

Because swing trading provides a quick profit with minimal knowledge of the stock market, it is popular with new investors who want to see results quickly. Because they do not have to perform in depth market analysis to predict future growth, it allows them to make money by following the general direction of the market. Additionally, such investors only hold onto the stock for a short period of growth and thus see much quicker rewards than long term stockholders.

This style of trading stocks doesn’t follow fixed guidelines. No two swing traders are ever alike in the way their form their judgments or make their decisions. Some swing traders also use statistical analysis. These analysis techniques include the use of exponential moving averages. That said, swing trading still relies heavily on hunches.

Swing trading is a type of stock trading that focuses on the short term. Instead of focusing on the long term when trading stocks, swing traders rely on general market fluctuations. Short-term trading like this can be profitable quickly, although investors sacrifice long-term dividends. One disadvantage to this type of trading is that traders owe more capital-gains tax. This style is good for new investors who are not ready to analyze long-term trends. It also offers a quick profit, although not as great as long term trading. Each trader will have his or her own way of trading, usually based on intuition.

- Mark Crisp