Daniel X. Bustamante, Co-Founder and Lead Coach
For beginner traders, it’s easy to get caught up in the lingo of trading. What’s better, what’s not etc., and one of those items is swing trading. It’s a term that is thrown around a lot with no real definition per se. What I mean by that is that different traders quantify swing trading based on different ideas.
Here at StockAbility™, we define swing trading (also known as short-term trading) as a five day or longer hold on any trade/investment you put on. Now onto the next question. Which is better, swing or day trading or day trading?
Which is better? Swing trading or day trading?
Well, there is no ‘right’ answer to this at all. This is a personal preference for many traders, myself included. When I started out, I was a proprietary futures trader, which is far removed from swing trading. As I progressed, I became a Portfolio Manager, where I switched to short-term trading and longer-term holds. Personally, I prefer swing trading.
Why? Freedom is probably my main reason. I don’t like having to be at my computer screen for large chunks of time. I’d rather be doing other stuff. I also don’t like to jump in and out of trades. I also find it less stressful because I look at a larger time frame and price target and allow the trade to get to that point.
Now, I do trade a lot of futures (E-Mini and Crude Oil) so for that, my strategy is more day trading. However, I do use swing trades there from time to time when appropriate.
In addition, I find that swing trading allows me to ‘mess with’ my trade less. What I mean by that is I don’t have to watch it every minute of the day. This means I am less prone to deviating from my trade plan and price targets.
Trading psychology is huge in this business and for some of you, saving yourself from yourself may be a key component in your personal trading development and journey. What I have found is that for many people, swing trading alleviates a lot of the issues like over-trading and selling too early. This is something that can be a problem for beginner traders and experienced traders alike.
The benefits of leap options
Yesterday, in our WealthAbilities course we discussed the idea of swing trading options. Now to be fair, swing trading can be done on both stocks and options. However, there is one strategy in particular that we teach and our students love, and that’s Leap options. The ability to buy calls or puts on a stock with a 12 + month expiration. In theory, you are swing trading the stock through options for an extended period of time.
For those that are busy and don’t want to spend lots of time trading, this allows you to put a trade idea on without having to watch it. Using options as a tool for leverage is also a great benefit to many as well, even those with smaller trading accounts.
To reiterate, short-term trading really is five+ days strategy, but, as I discussed above you can extend that to a much longer time-frame. That is alright… we aren’t buying and holding long term.
What about futures and swing trading?
I always get the question: can you swing trade futures? Yes, you can but let me present you with another idea. In fact, this was asked in the WealthAbilities course this week.
At heart, I am a futures trader, so don’t take what I am saying as a knock at futures. I love futures! Futures swing trading can be great, but, it is volatile and requires margin and a lot of capital. Instead, what if you could take that idea of swinging say the Nasdaq through the QQQ ETF? Yes, you can simulate the trade idea of being long on tech names through the use of both in the money options and swing trade the overall markets. For those who day trade futures, this is a good combo tool as well.
For example, let’s say you want to short the Nasdaq for 40 points. You know it could go lower but will have bounces. You can simply swing trade the QQQ put options as well. This way, you are trading the same idea, just squeezing more out of it.
Are those lightbulbs going off?
Swing trading is perfect for those of you who do not have time to sit in front of the screen all day, do not want to sit in front of the screen or day, or who find it too stressful.
Hopefully, this blog has defined what swing trading is and more importantly, started to get some of the lightbulbs going off on some different ways to swing trade your portfolio.
Daniel X. Bustamante