What is Swing Trading?

With many people seeing their employment situations change as a result of the COVID-19 pandemic, they have had to turn to alternate means of generating an income. This has led to an uptick in stock market activity, with many people, especially those younger than 30, looking to make some money in the financial markets.

While the classic rule for stock market success is “time in the market, not timing the market,” retail investors who are tech-savvy and who have a financial need to collect on profits in short order may not need to wait many years to realize healthy returns in the stock market.

While there are a number of strategies short-term investors can use to achieve gains in the financial markets, swing trading is one of the most commonly employed. Swing trading is the process of buying a security at a low point, holding onto it for a period of a few days up to a few months, and then selling at a high point to capture gains. This is slightly different from day trading, which will see investors buy low at the opening bell and then sell at a profit before the close of trading on that same day.

In order to be a successful swing trader, investors must have a stomach for considerable risk, as there are many unexpected factors that can divert the course of a security’s long-term trend. However, with a firm understanding of the following concepts, swing traders should easily be able to see their profits outstrip their losses, leading to tidy overall returns in the market.


While there will always be some risk involved when trading risk assets, there are a number of ways that traders can enter into informed trades that are highly likely to turn out profitable. One such strategy is to employ the CANSLIM method for short-term trading.

CANSLIM is an acronym developed by Investor’s Business Daily that delves into the seven most prominent characteristics of highly successful companies before making their biggest price gains. This ensures that when trading short-term, traders are getting their money in ahead of a bull run.

The in-depth breakdown of the CANSLIM letters goes as follows:

  • C stands for current quarterly earnings and those using the CANSLIM method are looking for quarterly earnings at least 25% above the same financial quarter of the previous year, with accelerated earnings in more recent quarters an additional strong signal of an imminent bull run
  • A stands for annual earnings growth and needs to be up at least 25% over the previous three years
  • N stands for new product or service to demonstrate that a company is continuing to evolve and innovate, with new editions of the iPhone being an easy example
  • S stands for supply and demand which uses the volume of the stock traded to see if there is an increase in demand 
  • L stands for leader or laggard and looks at whether a stock is a leader in an up-and-coming industry
  • I stands for institutional sponsorship which looks to see if any mutual funds or large banks have bought shares of the stock in recent quarters
  • M stands for market direction and looks at the NASDAQ and S&P 500 to see if the broader market is in an uptrend, stabilizing, or in a correction. Those using the CANSLIM method like to buy during market uptrends

By doing this in-depth research of companies’ performance, CANSLIM traders base their buy and sell decisions more on fundamental analysis than do most modern short-term traders, who rely heavily on the following concept: technical (chart) analysis.

Technical Analysis

No matter the strategy employed when investing in financial markets, the ideal for every investor is to buy low and sell high. In order for a swing trader to make this a reality, he or she must be able to effectively utilize technical analysis. 

Technical analysis is the process of looking at charts to spot trends and patterns in a security’s price movement. This can help swing traders determine their entry and exit points when investing in a security.

While there are a number of technical analysis tools and indicators, there are few broad categories under which they may fall:

  • Momentum indicators – this is a technical analysis tool that can give investors an idea of the strength and direction of a security’s price movement. Moving averages are a common momentum indicator
  • Continuation patterns – these occur when a security is trading fervently along a given trend line and then take a small breather before continuing with the overarching trend. Flag patterns and pennants are common examples of continuation patterns
  • Reversal patterns – these give investors a signal that a security’s price may be ready for a change in direction. Common reversal patterns are crab patterns and head-and-shoulders patterns


Swing traders must keep a close eye on volume in order to be successful. Volume is the number of shares traded during a session and is important for a couple of reasons.

First, volume can help confirm or reject the formation of certain patterns when looking at the price chart. Second, swing traders must trade in high volumes in order to be successful. A $50 per share increase is a huge jump in a share’s price, but if you are only trading in volumes of 10 shares, that will not be enough to live on. Therefore, swing traders often trade in volumes of 1,000 shares or more in order to make their profits add up more quickly.

Stop Loss

The key to being a successful swing trader is to make sure your gains are far greater than your losses. However, some losses will inevitably occur when trading risk assets. 

The key to being a swing trader is to cut your losses early and do not let one bad trade wreck all of your gains by holding on too long. The stop loss will be the point at which the swing trader abandons a trade as lost and moves on, say 5% below (bullish) or 5% above (bearish) the entry point.

Take Profit

Successful swing trading involves a high volume of moderately successful trades adding up over time as opposed to waiting for that one big home run. Yes, investors who got in early and held on to securities such as Bitcoin, Amazon, and Shopify are likely rich today.

However, that is not the swing trader’s game. He or she will take more modest gains, such as 10%, and move on to the next trade before losing any time during a market correction.


Skylar Hammond is a writer for True Trader who specializes in topics such as stock trading, personal finance, and forex. He focuses on helping beginners and experts alike learn more about the market and improve their trading skills.

Jesse Fin

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