Swing trading is a term we use to describe a position trade which may last any where from several days to several weeks or even as long as a three months or more. In Day Trading we normally close out all positions on an intraday basis. This type of trading will often reduces the risk of holding a stock over night. However in a bull market is it really wise to close out your positions for no other reason other than the trading day is coming to an end
Sometimes day trading can reduce your overall profits in the stock market when the markets are running up in Bull market mode. This begs the question In a Bull market why day trade at all If stocks are running they will likely gap up each morning and if you close your positions each day you cannot profit from these gaps. Instead you will have to pay up each day to join the party. Often times day traders find themselves baby sitting cash while looking for favorable trades to place all the while they are missing the markets morning move up. While day trading is not a bad idea it can sometimes reduce your overall profits during a full fledge bull market run. Day trading has its place in a flat or range bound market but I tend to do a lot less day trading in Bull markets and more swing trading because I do not mind holding stocks overnight when the markets are in great technical shape.
If you keep an open mind about the market certainly it can be seen that there are times when holding a position for longer than a single day can be beneficial to your bottom line. Many times for example we take up a position and hold a stock for several days if not longer. Often times longer duration trades can turn out far more profitable than trying to day trade that same stock each day if the swing trade is executed and managed correctly.
Swing and Sing
With this said it should be noted that we are not prescribing a buy hold and hope mentality. If anything you need to be on your toes just as much with swing trading as with day trading. Profit taking and risk management needs to happen with just as much speed in positions held for multiple days as with trades made on an intraday basis. The only significant difference is that while managing the trade you also work to keep an open mind regarding the upside potential of the trade over an extended period of time. When swing trading try not to be so quick to take profits and move on to the next trade. Having patience while protecting profits with a trailing stop loss can result in spectacular swing trading gains in a bull market.
The basic idea of swing trading is that you want to attempt a trade in a stock which you feel may have additional upside if held longer than a day. Typically these would be slightly lower risk stocks which have basically more reliable or predictable longer term charts behind them. This is in contrast to day trading where we do not care about the risk of holding a stock over night because we are only interested in the stocks momentum for that particular day.
Regardless of how you actually go about managing positions which are held longer than a single day or whether you even combine swing trading with your day trading at all the basic idea here is to at least consider holding at least some stocks as swing trades when the potential upside and benefits of being long a Bull market may outweigh the risks of having open positions overnight.
Source : http://www.stocktradershq.com/articles/c126.htm
Last edited by dindon1 on Fri Jan 13, 2012 8:26 am; edited 2 times in total (Reason for editing : source mentioned)