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November 17, 2021
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Swing Trading and Why it Works
by Oliver Velez

When we talk about swing trading, we’re talking about a subset of the broader category of trading. It is a unique style of market play that involves an overlooked niche. It involves holding a stock anywhere from two to five trading days. Oftentimes a swing trade can last as long as ten days, but on average it’s about a two to five day trade. What’s interesting about this style and philosophy of trading is that it helps to capitalize on a market niche that in my opinion is still largely overlooked by some of your bigger players in the market.

Consider this concept. The two to five day timeframe is too lengthy for day traders who typically never hold a stock overnight, and at the same time it’s too short for those very large institutions to take advantage of. So that means two of the most dominant market groups in existence today are really not involved in this two to five day timeframe.

The big elephants, the institutions, cannot maneuver quickly enough for a two to five day timeframe. Their large purchases and sales must be done over a longer period. Day traders, market makers, and specialists do not typically hold stocks overnight. The individual astute swing trader operating in this void is devoid of serious competition. Basically, he or she is operating in a timeframe or a pocket in the market that really only has as participants ill-informed market players. And that spells opportunity.

Why Swing Trading Works

I believe swing trading is much safer than traditional day trading simply because the individual has more time to filter information. The individual has more time to make informed decisions. The individual has more time to assess the environment. Under those circumstances more intelligent decisions can be made. I find that the typical day trader, especially the micro trader with a great deal of seasoning, cannot act intelligently when he has a fraction of a second to do so. Swing trading is also safer than day trading simply because it lends itself to diversification, which is not usually the case when micro trading. Micro traders are going after exceptionally small gains so they have to make up for those small gains and the commissions that are levied against them with larger share size. That means, in many cases, piling into one play for a few seconds to a few minutes with the hope of capturing a small, micro gain. That takes a level of precision that most traders do not ever obtain because that type of precision and accuracy is only obtained through a long period of experience in the market. Finally, it is my contention that swing trading is even safer than investing. There is far less time for those all-to-often negative surprises to occur.

So swing trading is safer because it lends itself to diversification and because it lends itself to playing that style with a smaller account. Even as a talented market player, in order for me to put the odds in my favor when day trading, I have to play a big size; therefore, I have to have a big account. When swing trading, I can play fractional amounts because I’m capturing larger gains.

 
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