Ready to leave the chaos of day trading behind? Craving quicker returns than traditional “buy and hold?” Swing trading may be your perfect solution…but where to start? Here, we dive into 7 top swing trading strategies to help find your ideal fit.
Back when I first began trading stocks, in the late ’90s dot-com bubble, I got sucked into the fast-paced world of day trading.
Making snap decisions and seeing immediate gains (with occasional, gut-wrenching losses) was like playing a thrilling, high-stakes game. Those screens became my world, and I was always on alert…
But, day trading was so damn exhausting! It required too much screen time, endless stress, and juggling too many trades.
Fortunately, I soon discovered the world of swing trading and left the chaos of day trading behind. I suddenly felt like I stumbled upon a hidden level in the trading world.
Instead of holding a position for a few minutes or hours, I was now sitting in a typical trade for days or weeks.
The pace? More measured. The rewards? Still exhilarating. And the cherry on top? I finally had a life beyond those relentless screens (press here to learn more about how swing trading compares to day trading).
Still, merely switching from intraday to a swing trading time frame was not the golden ticket. I needed proper direction—a proven stock trading strategy.
At first, I tried going at it alone, through trial and error, convinced I was the next trading sensation.
Spoiler Alert: I wasn’t.
I made many mistakes, shed plenty of cash, and my ego took a solid hit. I quickly found myself paying hefty tuition to the “school of hard knocks.”
But then, a game changer: I found a mentor—someone who had mastered the art of swing trading.
I studied, learned their system, tested, refined, and finally, the wins started steadily pouring in. This success soon transformed my swing trading side hustle into a full-time trading business, led me to write 5 books on my swing trading strategy, and create Morpheus Trading Group (MTG)—way back in 2002.
So, why am I sharing this journey? It’s because every trader’s path is filled with many choices.
While there are myriad swing trading systems out there, it can feel daunting to find the best individual strategy to learn. Every trader has a unique personality and risk tolerance, so there is no “one size fits all” approach to swing trading.
That’s why we penned this handy post that breaks down and compares the top 7 broad types of swing trading strategies for you. Note that our proven MTG trading strategy has evolved to blend several of these methods over the past 2 decades.
My hope is to arm you with the knowledge so you can confidently navigate and choose a trading strategy (or combination) that feels right for YOU. And as you’ll discover, the magic of our Wagner Daily stock picks lies in its distinctive, proprietary combination of trading techniques that has stood the test of time.
Ready for some helpful insights? Dive in and continue reading below.
– Deron Wagner | founder @ Morpheus Trading Group
What is a Swing Trading Strategy?
After leaving the frantic hustle of day trading behind, I dove into the world of swing trading. But what exactly is that?
Simply put, a swing trading strategy is like your personal game plan. It gives you a set of rules to play by when you’re eyeing the market, aiming to pocket some profit from the market’s price shifts that happen over days or weeks.
Now, not all swing trading strategies are made the same. Some rely heavily on charts and trends (that’s technical analysis), while others dig into company news and financial reports (hello, fundamental analysis). But they all share a common goal: pinpointing those golden moments to jump into or out of a position.
Why swing trading? Well, it’s the sweet spot for folks like us. We’re not glued to our screens every minute like day traders, but we’re also not in it for the long, long haul like Warren Buffet. We ride the market’s waves, aiming to catch the best ones.
Whether you’re into stocks, crypto, options, or any other market, there’s a swing trading methodology tailored for you. Furthermore, a winning swing trading strategy works equally well in any global stock market—from New York to London to Bombay.
At the end of the day, it’s all about leveraging those short-term price changes to our advantage, and doing so smartly to keep risks at bay.
Top 7 Types of Swing Trading Strategies
Below is a succinct comparison of 7 of the most popular broad types of swing trading strategies, including the Pros and Cons of each.
1. Trend-Following Strategy:
Capitalize on established market trends using reliable technical analysis indicators
Also known as “trend trading,” this popular technique seeks to identify stocks that are already in solid uptrends or downtrends, then enter trades in the same direction of the trend. This typically means buying during uptrends and/or selling short during downtrends. Traders utilizing this strategy typically use moving averages, trendlines, and other technical analysis tools to determine the direction of the trend, as well as when to enter and exit positions.
- High potential for consistent trading profits when a solid trend is identified
- Relatively easy for beginners to understand and implement
- Provides clear exit points and stop prices when the trend reverses
- Requires patience, which can be challenging for some traders
- Potentially late entries can reduce profit margins
2. Breakout Trading Strategy:
Profit from price movements as they break through established resistance or support levels on charts
Breakout trading involves entering a position as early as possible within a new price movement or trend. Typically, this technique relies on identifying key resistance or support levels on a chart, then entering trades when prices ‘break out’ from their prior ranges.
As with trend-following, the breakout trading strategy relies heavily on simple technical analysis tools and chart patterns to spot breakouts, and to know the right time to buy and sell.
- Clear entry and exit points based on technical levels
- Potential for significant profits during strong momentum phases
- Trades have strong market validation due to collective action
- False breakouts require tight risk management
- Can require constant monitoring of price action
- High competition as many traders watch similar breakout levels
3. Pullback Trading Strategy:
Buy the dip and ride the bounce in a trending market
A pullback strategy revolves around taking advantage of shorter-term price retracements within a longer-term trend. Traders look for temporary price reversals (“pullbacks”) to enter at a more favorable point before the main trend resumes.
Pullback trading is often complementary to breakout trading, as breakout traders who miss a fast-moving breakout can simply wait for a minor pullback to get a lower-risk entry point. The first pullback to short-term support after a breakout often provides a relatively low-risk entry point that leads to similar results as buying the breakout.
- Allows for optimized entry points
- Generally lower-risk trade setups, as you’re trading with the trend
- Provides good risk-reward ratios
- Identifying the end of a pullback can be tricky
- Possibility of mistaking a trend reversal for a pullback
- Requires a solid understanding of support and resistance
4. Momentum Trading Strategy:
Profit from the velocity of stocks in motion
Momentum traders seek to take advantage of market volatility by targeting stocks showing strong price movements on high volume. This can be driven by news releases, earnings reports, or other high-impact events.
Relative strength trading, a key aspect of our Wagner Daily swing trades, is a highly reliable type of momentum trading. Technical indicators such as Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) can also be used to identify momentum and determine when to enter and exit a trade.
- Potential for rapid profits in short time frames
- Provides a clear trading edge during strong momentum
- Often accompanied by high trade volume, confirming the trend
- Highly susceptible to sudden market reversals
- Requires quick decision-making and execution
- Often demands more focus and screen time
5. Mean Reversion Strategy:
Capitalize on price movements returning to a stock’s historical average after extreme divergences
Mean Reversion is a swing trading approach that identifies stocks sharply diverging away from their historical average prices, then entering trades with the expectation those stocks will eventually return to their mean. Traders use statistical tools, such as Bollinger Bands, to pinpoint stocks trading outside their typical ranges, then determining when to buy and sell.
- Capitalizes on overextended price movements, offering potentially high returns
- Based on a foundational market theory that prices tend to stabilize over time
- Often uses well-established statistical tools for identification
- Requires accurate identification of the “mean” or historical average
- Can result in prolonged holding times if an asset doesn’t revert as expected
- External market forces or news can disrupt predicted return to the mean
6. Arbitrage Trading Strategy:
Focus on price discrepancies of a stock or asset across different markets or financial instruments
The arbitrage strategy involves taking advantage of discrepancies in the price of a stock in different markets, or between different financial instruments. For example, a trader might buy a stock in the cash market and simultaneously sell a futures contract on the same stock at a higher price. A profit could be realized by the difference in prices.
- Offers near-instant profit opportunities due to simultaneous trades
- Generally considered low-risk since it’s based on existing price discrepancies
- Can be automated using algorithms for high-frequency trades
- Requires advanced systems or platforms to identify and act on discrepancies quickly
- Profit margins may be slim, so it often demands high volumes to see substantial returns
- Rapid market adjustments can quickly erase arbitrage opportunities
7. News-based Trading Strategy:
Target price movements driven by significant news or events affecting a stock
Traders who employ a news-based trading strategy enter trades based on how the market is expected to move in response to recent or upcoming news or events.
Unlike the other strategies above, news-based trading combines fundamental analysis (assessing news events) with technical analysis (predicting price movements) to spot ideal trade setups that are primed for news-driven moves.
- Offers potential for significant profits if news is interpreted correctly and acted upon swiftly
- Provides clear catalysts for market movement, making entry and exit points more discernible
- Can leverage market volatility to the trader’s advantage
- Market reactions to news can be unpredictable, leading to higher risk
- Requires constant vigilance to monitor and act upon breaking news
- News can already be “priced in,” resulting in the opposite movement than expected
Additionally, note that some swing trading strategies achieve the best results by using a combination of the above trading techniques.
The MTG swing trading strategy, for example, is a trend-trading system that seeks to profit from explosive breakouts and lower-risk pullbacks in leading growth stocks. In certain market conditions, our methodology also focuses on relative strength momentum trading.
Overall, any strategy for swing trading can be lucrative if it enables you to correctly identify and capitalize on price changes in the market. However, it is important to realize that all swing trading strategies carry their own set of risks. Always carefully evaluate your trades and manage risk accordingly.
How can I start swing trading? 7 simple steps to get started
Starting swing trading can be a great way to generate income as a side hustle and potentially grow your wealth, but it’s important to approach it with a solid plan and realistic expectations.
Here are 7 steps you can take to start swing trading:
- Educate yourself: Before you start swing trading, it’s important to educate yourself about the markets and the different strategies and indicators that are commonly used. There are many resources available online, such as books, articles, and tutorials, that can help you learn more about swing trading. The Wagner Daily PRO service may be the perfect solution for you, regardless of your experience level. Press here to learn more about it.
- Develop a trading plan: Develop a trading plan that includes your goals, risk management strategies, and entry and exit criteria. This will help you stay focused and disciplined while trading.
- Paper trade: Before you start trading with real money, it’s a good idea to practice using a “paper trading” account. This will allow you to test your strategies and get a feel for the markets without risking any real money.
- Choose a brokerage: Once you’re ready to start trading with real money, you’ll need to choose a brokerage. Look for a reputable brokerage that offers a trading platform with real-time quotes and technical charting capabilities. TradeStation and Interactive Brokers are two such popular options.
- Start Small: Start with a small amount of capital, and only invest what you can afford to lose. As you gain experience and confidence, you can gradually increase the amount of capital you invest.
- Monitor your trades: Keep track of your trades, and review them regularly to identify any areas where you can improve. This will help you learn from your successes and mistakes, and become a more successful trader over time.
- Continuously educate yourself: Markets and strategies are constantly changing, so it is important to continuously educate yourself and adapt to the new market conditions. Our swing trading blog is a great resource to continually build on your swing trading education.
It’s important to remember that swing trading is not a means to getting rich quick. Rather, successful trading requires a high degree of both patience and discipline.
Beyond the myth of the “holy grail”
Look, when I first stepped into this arena, I too was hunting for that elusive “holy grail”—that magical strategy promising untold riches.
But here’s the kicker: there isn’t just one perfect swing trading methodology. Yep, each strategy has its highs and lows.
Here’s a golden nugget I’ve learned over the years: the best trading strategy is not about secret charts or mystical formulas. It’s about consistency, understanding your risk, and, above all, finding what aligns with you.
If a strategy doesn’t gel with your instincts or feels like trying to fit a square peg in a round hole, it’s probably not for you.
When I was in your shoes, starting out, I wish someone had told me to just risk a smidgen of my capital, test the waters with different methods, and truly uncover what felt right. But, since we can’t turn back time, I’m passing on this wisdom to you now.
Now, I won’t say the Morpheus swing trading system is for everyone, but it’s been my rock. It’s a calm, end-of-day strategy (ah, the days before my full-time trading gig!) with flexibility in diverse market conditions. It aims for those exhilarating wins in bull markets, while playing it cool in bear markets.
Over 70,000 traders and investors have taken a peek into the MTG swing trading strategy through The Wagner Daily PRO report since 2002. Are you ready to join them?
Got questions? Just press the chat icon to drop us a line.
FAQ: Frequently Asked Questions about Swing Trading Strategies
Which strategy is best for swing trading?
There is no one-size-fits-all strategy for swing trading, as it largely depends on your individual risk tolerance and investment goals. However, a trend-following strategy based on technical indicators is one of the most popular types of swing trading strategies.
This includes technical swing trading techniques such as breakouts, pullback buying, and momentum trading. Many of these methods for combined and integrated with the use of candlestick charting for further technical insight.
How profitable can swing trading be?
Swing trading can be a consistently profitable side hustle, and can even lead to a full-time career. However, the profitability of swing trading varies widely, and depends primarily on a trader’s skills, strategies, and risk management practices.
Of course, the size of an individual’s trading account plays a huge role in the amount of profits that can be earned. Additionally, the markets are always changing and what works well in one market environment may not work as well in another.
Which indicator is best for swing trading?
There is no one indicator that is considered the “best” for swing trading, as different indicators may be more suitable for different traders and market conditions.
At MTG, we prefer a simple swing trading method based primarily on price, volume, relative strength, and support/resistance levels (moving averages). Other swing traders may also utilize more complex technical indicators such as Bollinger Bands, MACD, and RSI.
Note that no single indicator can give a complete picture of the market. As such, many traders combine multiple indicators and chart patterns to provide a more comprehensive analysis.
Can I get rich swing trading?
Swing trading can be a great way to generate income, but it is not a get-rich-quick scheme. While It is possible to make significant profits through swing trading, it’s important to have realistic expectations.
It takes time, patience, discipline, and a strong understanding of the markets to be successful. Consistently profitable swing traders typically have a solid strategy, a well-defined risk management plan, and the ability to control their emotions while trading.
Is Swing Trading Risky?
Any style of trading, from day trading to position trading, carries a certain level of risk. The markets are inherently unpredictable, and there is always the possibility of losing money. However, the level of risk can be managed through proper risk management techniques and having a well-defined trading plan.
Swing trading typically involves holding positions for a few days to a few weeks, which means that the level of risk may be lower than a day trading or scalping style, where positions are held for a very short period of time. However, swing trading strategies may carry a higher risk of market-moving news events outside of market hours.
What is swing trading?
Swing trading is a style of trading where investors hold positions for a period of a few days to weeks, with the goal of profiting from price movements in the markets. The goal of swing trading is to identify short-term trends in the markets, and to profit from buying low and selling high, as the stock price “swings” up and down. Press here to learn about the pros and cons of swing trading, and how it compares to day trading.
What are the risks of swing trading?
All styles of trading carry a certain degree of risk. Specific risks associated with all swing trading strategies include: market risk, volatility risk, liquidity risk, emotional risk, and personal risk management of positions.
What is the 1% rule in swing trading?
The 1% rule in swing trading is a risk management strategy used by traders to limit their potential loss on any single trade to just 1% of their total trading capital. By adhering to this rule, traders ensure that even a series of losses won’t significantly deplete their account, allowing them to continue trading and potentially recover from downturns.
To implement the 1% rule, a trader calculates and sets a stop-loss level for each trade such that the maximum loss, if the trade goes against them, is only 1% of their total account balance. This disciplined approach promotes longevity in the trading world and encourages traders to analyze trades more thoroughly, focusing on high-probability setups rather than chasing every market movement.
What percentage of swing traders make money?
While exact figures can vary based on market conditions and individual skill levels, it’s often cited in the industry that around 10% of swing traders are consistently profitable. This percentage might seem low, but trading is a challenging endeavor that requires a combination of skill, discipline, risk management, and emotional control. It’s essential to understand that many traders might experience short-term successes, but maintaining consistent profits over the long term is more difficult. This is why it’s crucial to learn a rule-based swing trading technique that has been proven over time–such as the 21-year track record of MTG.
Factors influencing this percentage include the steep learning curve for beginners, lack of a well-defined trading plan, inadequate risk management strategies, and the psychological challenges associated with trading. However, with proper swing trader education, a sound strategy, and continuous self-assessment, traders can improve their chances of being part of that profitable percentage.