Swing Trading Strategies for 2024

Swing trading has the potential to be highly rewarding, but only if you employ smart strategies that have a high chance of paying off for you. If you're looking for an expert guide on some of the best swing trading strategies for 2024, we've collected a few great examples below. Read on to learn even more!

What is Swing Trading?

As a type of fundamental trading, swing trading can be defined as any investment activity that is somewhere in the middle between the incredibly fast-paced type of trading that day traders do and the much slower-paced buy-and-hold investments that characterize trend trading or long term investing. 

Investment hold periods for swing trading tend to be short to medium in length, ranging from a few days to even a few weeks in certain circumstances. This medium-paced approach offers moderate profits per trade that, while typically lower than with trend trading, are higher than with day trading.

Swing trading, as a fundamental trading approach, has a high dependence on choosing assets that are liquid enough to be traded easily as well as volatile enough to have valuation changes that can be capitalized on. Volatility is the main concern here, as if there's not enough volatility there will be fewer opportunities to profit on trades, even after protracted holding times. Meanwhile, excess volatility injects high levels of risk that a trend reversal could occur, wiping out an investment. 

Market conditions obviously play a major role in how swing trading works, as smart investors have to keep a close eye on what's impacting the markets to know which way prices may break as a result.

The Four Most Popular Swing Trading Strategies 

Swing trading strategies rely on analyzing multi-day chart patterns to identify trends. The key tool that swing traders use is technical analysis, which relies heavily on looking for trends that indicate when it's most advantageous to take open or close positions for specific assets. 

Strategies are helpful, but reliability is a must. It's impossible to devise a strategy that's 100% accurate, but if your risk/reward ratio is favorable enough, then a strategy that provides you with even a few successful trades can keep you profitable if you're a swing trader.

Not all swing trading strategies are created equal. As mentioned above, there's no strategy that's going to get it right all the time, but the following four popular swing strategies are well-known and well-used for a reason: they work reliably enough that enough swing traders have come to trust them. Here's a summary of each one.

Trend Trading

Trend trading involves holding an open position until the trend changes, whereas swing traders instead do so whenever target profit thresholds are reached. While this seems like a contradictory statement, a swing trader can adopt these concepts for identifying potential short-term gains by identifying a trend's direction. 

Trend trading offers advantages for swing traders, as identifying a trend prior to its beginning allows traders to prepare accordingly and open or close positions right at the beginning. Even in the case of minor fluctuations, trend trading also offers more entry and exit points to choose from as well for the same reasons. There are limitations, however, as there are always risks of falsely identifying a breakout and it not materializing. It's also all too easy to fall victim to emotional decision making when you're trend trading, which can lead to potentially suboptimal investing outcomes.

Counter-Trend Trading

Counter-trend trading revolves around trading against momentum. This means that you would sell assets when markets are buying and buy assets when the market is selling. The core concept is to wager on reversals and then potentially profit from corrections. Such counter-trend strategies, which are also sometimes referred toas "fading" strategies, are often most useful in highly volatile markets where there's a bigger likelihood of corrections that could potentially lead to profit. Counter-trend trading typically needs a deep level of understanding of why the trend is expected to reverse. Timing is also extremely crucial - a few days off, and one may not have enough patience to wait for the trend to reverse.

That being said, this is not a beginner's trading strategy. It requires a high level of knowledge and experience and relies on a high amount of self-discipline to minimize the heightened risks of trading during times of increased volatility. It's also more susceptible to overnight valuation gaps as well, making counter-trend trading something that has much in common with day trading.

Breakout Trading

A breakout trading strategy relies on instances when the valuation of a specific asset moves beyond a price range that's been pre-defined. Breakout-centric strategies rely on swing traders attempting to take positions early in the face of a potential uptrend. This requires a trader to enter trades when they see the amount of volatility they're looking for. While it's not as advanced as counter-trend trading, breakout trading is definitely for those with some experience. 

Advantages to breakout trading include substantial profits when momentum takes off. It's also a good choice for volatile markets as trends frequently occur. However, there are also still limitations in that it's all too easy to get caught in a false breakout and that a trader needs to be disciplined to avoid making emotional trading decisions. Knowledge of markets and technical analysis is also necessary, as breakout trading relies highly on reading support and resistance levels accurately.

Breakdown Swing Trading

If breakout trading is about opening positions prior to a potential uptrend, breakdown swing trading is the exact opposite. In these cases, traders are betting against momentum by opening a short position when the price of an assed breaks below a defined level in the early moments of a downtrend. Once positions are set, traders can take profits just prior to the asset swinging low. Like counter-trend trading, this strategy too needs deep work - a clear understanding of the thesis behind why the particular asset is expected to have a “breakdown”.

Because breakout and breakdown trading are so similar, the pros and cons of both of these methods are nearly identical, as they rely on the same general concept.

The Most Popular Swing Trading Indicators

With swing trading revolving around technical analysis, it's important to identify which trading indicators are the most popular for swing traders based on what they can show traders. 

Technical indicators like the Relative Strength Index (RSI) are excellent for defining the strength of trends and the potential for changes to that trend, while the moving average (MA) is also considered a good choice for traders who want to determine support and resistance levels for assets in the shorter-term. Bollinger Bands are also quite popular, as these trading indicators can be used to identify price turnarounds. Other popular indicators include triangle trading patterns, flags, and head-and-shoulders price reversal patterns.

Risk management in swing trading

Swing trading is as different from traditional investing as it is from day trading, but in the opposite direction. Investing is much longer-term, as it involves buying assets and holding those assets for months, years, or even decades to capitalize on the trend that most markets will increase in value over long periods of time. Investing is much more passive than swing trading, but on the other hand the timeframe of profitability is measured in those same years or decades. If you're looking for quicker profits without having to micromanage your trades in the way a day trader does, swing trading represents a happy medium.

All trading and investment carries risk. Swing trading, though, has its own unique risks, with the first being higher exposures to overnight and weekend risk. This occurs when the value of an asset gaps up or down substantially when the market opens back up again the following business day. Abrupt and unforeseen market reversals also represent major risk factors for swing trading, which is why it's essential to select markets or assets that have just the right amount of volatility. With market reversals often tied to external factors, though, this can be very hard to predict.

Because swing trading does have a higher risk profile than other types of investment activity, it's crucial to take steps to manage that risk more diligently. Discipline and diligence are both important, as is ensuring you're making logical trading decisions and not emotionally-driven ones. 

Position sizing is of paramount importance. While the upsides of swing trading are clear, the downsides must be considered too. Given that swing strategies only typically last a few days or weeks, you should never invest more capital than you're willing to lose if the trade doesn't end successfully.

What Can Composer Do For Swing Traders?

Because swing trading requires access to technical analysis tools, it's practically a requirement for swing traders to work with an online trading platform like Composer that offers these tools to their members. Without proper data visualization opportunities, it's nearly impossible to see the telltale signs of emerging trends in time to act on them reliably.  Composer also has a vibrant online community of traders that can discuss upcoming trends and share knowledge and insight, a must for new traders.

Other ways an online trading platform like Composer can help is by offering access to historical data, which is invaluable for backtesting trading strategies, especially automated ones that are designed to open and close trade positions once asset values hit certain thresholds. Many day traders and swing traders use such systems to minimize risk and maintain discipline. Thankfully, Composer has easy, no-code required capabilities for any trader looking to design their own automated strategies.

Being a successful swing trader means more than just knowing the markets intimately - it means understanding which strategies work and why. If you're looking for the best information on swing trading strategies, choose Composer as your online trading platform of choice.