Swing Trading: Short Term Trading For Beginners
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.
Investors can earn a profit in two different ways when they invest upon stocks. Profit can come from either capital appreciation or dividend income. It's worth noting that those investors interested in swing trading would only be interested in capital appreciation, not profits accrued from dividend income. Investing for the short time periods involved in this trading would generally rule out dividend bonuses.
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.
For inexperienced investors, swing trading is actually a good trading style. This is because such investors, who can be impatient to see profits, don't have enough expertise to conduct long term market trend analysis. Swing trading offers investors short-term profits, even if they could have made substantially higher profits had they invested for longer and carried out trend analysis.
No particular rules apply to this method of trading stocks. Swing traders will all have their own particular way of conducting transactions. Though there are statistical tools such exponential moving averages, swing trading is often just based on intuition.
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.
Published May 18th, 2007
