Are You a Trend Trader or a Swing Trader?

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Are You a Trend Trader or a Swing Trader?

Although financial markets are very complicated, most trading tactics fall into one of two categories: trend tracking or swing trading.

Each strategy has benefits and drawbacks, as well as certain restrictions that investors must adhere to in order to prevent mistakes. However, many investors choose contradictory techniques at random without understanding how they might harm profitability. Determine if you are a trend trader or a swing trader in order to fine-tune your technique.

Key Takeaways

  • Trend traders often trade up or downtrends, with transactions lasting many months or more.
  • Swing traders often trade in ranges, buying at support and selling at resistance. Their transactions are generally just for a brief period of time.
  • Trend traders are more concerned with macroeconomic news, while swing traders are more concerned with short-term price swings.
  • Swing traders trade more often and for a shorter time period than trend traders, while simultaneously taking bigger positions and being more exact with their position timing.

Trends and Swings

The trend trader, in principle, takes a risk in an upswing or decline and remains positioned until the trend turns. The swing trader, on the other hand, operates within the confines of range-bound markets, buying at support and selling at resistance.

Swing trading is better suited for shorter time periods, but trend-following tactics may be used for months. However, owing to the availability of real-time charting for all time periods, the distinctions have blurred in recent decades.

Which One Fits Your Style

New and intermediate traders should choose one of these disciplines early in their market education and continue with it until they master it or discover they are better suited to the other way. Experienced traders may freely mix and combine these methods, resulting in extremely successful hybrids that demand strict discipline yet offer outstanding bottom-line profits.

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This dual effort is most effective for those who can keep each strategy within its correct parameters while changing risk management to match the specific features of hybrid strategies.

Long-side swing trades, for example, need quick exits at resistance levels such as historical highs, while trend-followers wait on their hands and enable equities to test and break such levels. A hybrid technique may be to sell half the position at resistance while holding the other half in anticipation of a breakthrough.

Trend Trader vs. Swing Trader

Still unclear about the major distinctions between swing and trend traders? These trading qualities will assist you in identifying your present strategy.

80-20 Rule

According to the 80-20 rule, markets trend approximately 20% of the time and spend the other 80% of the time grinding through trading ranges, pullbacks, and other counter-trend activity that challenges limits. In trends, the price rate of change increases, attracting trend traders, and decreases in trading ranges, drawing swing traders.

The Big Picture

Trend traders are interested in broad economic, political, and environmental factors that may have an impact on position selection or risk management. Swing traders may safely disregard these macro effects in order to concentrate only on short-term price activity.

Trade Frequency

Swing traders take more positions but keep them for shorter periods of time, while trend traders take fewer positions but hold them for longer periods of time.

Position Selection

Trend traders own or short sell stocks that are experiencing the strongest uptrends and downtrends, while swing traders own or short sell securities that are at support or resistance levels.

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Position Size

Swing traders take bigger bets on shorter time horizons, whereas trend traders take smaller bets on longer time spans. Swing traders use leverage more often than trend traders.

Position Timing

Swing traders seek precise timing since the average gain or loss is less than for trend traders, who may miss the start or conclusion of a trend and still benefit significantly.

Entry Strategy

Trend traders either take trades when momentum is high or wait for a counter-trend to reduce risk. Swing traders take a risk at a level of support or resistance, fading the barrier by positioning in the other direction and putting stops when they are proved incorrect.

Exit Strategy

Swing traders close trades when their stops are reached or their profit goals are met. Regardless of time range, trend traders keep positions until the trend shifts. They set stops at the price level that indicates a trend shift.

The Bottom Line

Swing traders and trend traders use various market timing tactics, which need different skill sets. While expert traders may effectively combine various methods, beginner and intermediate traders should concentrate on one strategy and stay with it until it is thoroughly understood.

Whether you are a trend trader or a swing trader, your ability to use a variety of technical tools to your research of a certain market or securities will determine your profitability. To learn more, visit the Investopedia Academy’s Technical Analysis course, which features instructive videos and interactive information to help you improve your trading abilities.

Investopedia does not provide tax, investment, or financial advice. The material is offered without regard for any individual investor’s investing goals, risk tolerance, or financial circumstances, and may not be appropriate for all investors. Investing entails risk, including the possibility of losing money.

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