Swing trading is a technique used by at-home traders to exploit short-term price action in stocks. By short-term, we do not mean just within a day. People who trade in and out of stocks and close out of their positions at the end of the day are called day traders. Swing traders, on the other hand, always hold their stocks for at least two whole days. Swing traders can hang onto their stocks for as long as six weeks before they sell out of their positions entirely.

Most swing traders live by the golden rule “trend is your friend.” Swing traders always look at the overall direction of a stock they are interested in taking a bet on. If the trend is going upwards, they can either buy the stock at market value or buy call options. If the stock is going lower, they can either short the stock or buy puts.

Since swing traders are generally in the market for a longer period of time than day traders, they rely on analyzing fundamentals as well as technicals. While swing traders can look into price trends on fifteen-minute or thirty-minute charts, they will more likely use graphs that show a stock’s daily, weekly, or even monthly trends.

Day traders generally do not take fundamentals into consideration at all in their trading. Day traders rely more on exploiting minute by minute price action within an equity. But swing traders may base their whole trading strategy around the fundamentals of a company. Swing traders may make bets on certain news events, such as a company’s earnings report.

Since swing traders leave their positions on overnight, they do risk having to deal with sudden movements in an equity that they cannot control. Day traders take off risk by closing out all of their positions every day, but they tend to get less gains than an experienced swing trader. Swing traders are all about locking in more gain, and they hope that the stocks they let sit overnight have more risk to the upside.

Although there is no set date that defines where a swing trader becomes a long-term investor, a good rule of thumb is six weeks. If a person has not gotten out of any of their positions within six weeks, they could be considered a long-term investor. Swing traders still need to be active in the market to be considered a trader at all. Investors, on the other hand, could have positions on for years without taking any action.

Long-term investors tend to focus on macro themes. They take a long-term view of whatever company they are investing in. Long-term investors don’t really spend a great deal of time looking at technical analysis.

Swing trading, of course, is not limited to stocks. There are many swing traders who are involved in the currency markets, options markets, and even commodities.

We should also note that swing trading can only be done effectively by individual traders. Giant institutions simply cannot move their capital quickly enough in and out of their positions. Swing trading is a good strategy for people gaming the market at home because it allows traders to exploit potentially big moves in short-term time horizons.

Swing traders need to be nimble, but they don’t have to worry about closing every day with a profit. Swing traders do have the luxury of time. They can let their stocks sit for a while before deciding to pull the plug.

Since the birth of the Internet and the concomitant growth in online trading, swing trading has become very popular with at-home traders. Swing trading offers one of the most cost-effective ways to exploit the market for big gains in a relatively short period of time. It also removes much of the hassle that comes along with day trading in terms of filing taxes each year.

For anyone interested in swing trading, there are various resources available online to help people get started trading in the market like a pro.