Swing Trading - Profit Booking Riding On Short Term Market Sentiments

By Mark Crisp

Swing trading is a type of trading where investors only hold stock for short durations. The time involved is usually no more than a fortnight, and investors will sell the stock based on intra-week or intra-month prices. Swing traders don't spend too much time researching companies or looking at their fundamentals. Instead, the swing trader attempts to realise profit through the short-term variation of particular stocks or indices, rather than through conducting in-depth market analysis.

Large-cap stocks, usually belonging to Fortune 500 firms, are a favorite choice for swing traders. These firms have a track record of making money, and have been around for a long time. These large-cap stocks have a tendency to rise or fall based on market sentiment. Swing traders attempt to take advantage of changes in market sentiment by holding onto stocks for a short duration, usually no more than a few weeks, while the market is in either an optimistic or pessimistic period. They will then rapidly do an about-face.

There are two distinct ways in which and investor can make a profit off stock investments. These two are dividends, and capital appreciation. Anyone involved in swing trading will have determined that they are not interested in gaining profit off of dividend accrual, as they invest for short time periods, which in most cases does not allow for dividend bonuses to be made.

An area where traders involved in short-term trading loose money is capital-gains tax. The present tax structure is highly skewed in favor of long term investors. The tax levied on capital gains upon a realization of profits is much higher if the profits are booked on swing trading stocks.

Swing trading might work in the interest of people who have just started investing in stocks. People new to stock investment lack patience. Such people don't have the basic knowledge to do fundamental analysis of stocks. At the same time, they are on the lookout for fat and easy profits overnight! Swing trading provides them some profits for short holding periods. However, chances are that the profits would have been much more had they done the research work and held on to the stocks for longer periods.

This method of trading stocks is one without any set rules. Every swing trader buys and sells in a different way. Some use statistical tools such as exponential moving averages, but the majority of traders will tell you that swing trading mostly involves intuition for the market.

Swing trading is one way to make money in the stock market.

It involves trading stocks of large established companies, while holding the shares only for a short period of time to take advantage of weekly fluctuations. It can be a good way for inexperienced investors to learn about the market without having to do long term analysis.

A couple things to keep in mind when doing short-term trading is that the capital gains taxes will be higher than with long-term trading, and there is usually less money earned on dividends.

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Published at May, 23 '07 , Read 510 times.

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