Swing Trading and Momentum trading

Are You a Trend Trader or a Swing Trader?

Hello, friends today we are going to discuss some concepts about what is swing trading and what is momentum trading and what will benefit you more so let's get started.


In the stock market, we can see that some stocks are range-bound and almost all the stocks follow the norm of support and resistance. Whenever stock starts bouncing back from support or starts coming downwards from resistance we can say its swinging between support and resistance, while when any price action breaks support and resistance we can say momentum has occurred.


Let’s analyze this one simple example




The probability of swing is greater than momentum. It means swing trades are more than momentum trades so the probability of success of momentum trader is also less. But whenever any major support or resistance breaks with high volume then it gives a very dynamic move where one can make a big money in lesser time (by buying options). 

So swing traders play their game in a channel of support and resistance and whenever its breakout occurs a dynamic wave occurs and that's where momentum traders come. So swing traders are major option sellers in the market as we know in stock market option sellers have a higher probability of winning.


Both swing and momentum traders always check the strength of the trade by RSI Indicator and also check the volatility and mark their boundaries and check open interest.


80-20 Rule

The 80-20 rule says markets trend about 20% of the time and spends the other 80% grinding through trading ranges, pullbacks, and other counter-trend action that tests boundaries. The price rate of change rises in trends, attracting the trend trader and falls in trading ranges, attracting the swing trader. 

Position Size 

Swing traders hold larger positions for shorter time frames, while trend traders hold smaller positions for longer time frames. Swing traders apply leverage more often than trend traders.

Exit Strategy:

Swing traders exit positions when stops are hit or profit targets are reached. Trend traders hold positions until the trend changes, regardless of the time frame. They place stops at the price level that signals the trend change. 


References:


For my Zerodha referral: https://zerodha.com/open-account?c=SA5886


Investopedia information: https://www.investopedia.com/articles/active-trading/082115/are-you-trend-trader-or-swing-trader.asp

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