Table of Contents
Table of Contents

Swing

What Is a Swing?

A swing can either refer to a type of trading strategy or a large fluctuation in the value of an asset, liability, or account that reverses a trend. This term commonly refers to a situation in which the price of an asset experiences a significant change over a relatively short period.

A swing may also be used to reference swing trading, which is a popular trading strategy where a trader attempts to capture gains by holding a security for a short period, while waiting to see if a trend develops.

Key Takeaways

  • A swing can either refer to a type of trading strategy or a fluctuation in the value of an asset, liability, or account.
  • A swing in the financial markets, which is caused by increased volatility, can be seen easily when the price of certain security undergoes a rapid, directional change in value.
  • Swing may also be used to reference swing trading, which is a trading strategy where a trader attempts to capture gains by holding a security for a short period, while waiting to see if a trend develops.

Understanding a Swing

A swing in the financial markets, which is caused by increased volatility, can be seen easily when the price of certain security experiences a sudden directional change in terms of its market price. Investors refer to these sharp shifts in price as a market swing. For example, it is not uncommon to see a major index swing from negative territory to positive territory just before the market close, or after an FOMC interest rate announcement.

Swing trading is often used by individual investors to capture profits from the day-to-day fluctuations in a security’s price movement. Traders who use this strategy often use swing highs and swing lows to time their entry and exit points. To find the best stocks to swing trade, many traders use websites that have access to stock market scanners, such as Yahoo Finance, Finviz.com, and StockCharts.com.

On the other hand, financial institutions such as banks, hedge funds, and asset managers do not often have the luxury of swing trading a position over a matter of days, because the large size of their order would usually have too much impact on the price of the asset.

Managing Market Swings: Keep Emotions in Check

Market swings are inevitable. In today’s fast, news-driven environment, it is easy for investors to get caught up in news that can rattle markets. Whether it is legit news or fake news, it has the same effect—it is unnerving and can cause emotional angst. Investors can manage their emotions during market swings by having an investment plan. During times of uncertainty, following a plan helps investors remain calm and ride out the swing.

Market swings present investors with an opportunity to accumulate security's at a discounted price. For example, a 10% drop in the Standard and Poor’s 500 index (S&P 500) allows investors to add some quality names to their portfolio. To manage risk during a market swing, investors can dollar cost average into a stock. To do this, the investor purchases a fixed dollar amount of shares in intervals. For instance, if an investor wants to invest $50,000 into a stock, they might buy it in five $10,000 allotments.

What Is Swing Trading?

Swing trading is a technical strategy that looks to profit from market reversals or sentiment changes that occur over a period of several days to weeks. Swing trading often works best in more volatile markets that are subject to several directional changes over that time period. This differs from day trading, which looks to hold positions for a day or less.

What Do Swing High and Swing Low Mean?

Swing high is a price top observed using a technical indicator. A swing low, likewise, refers to a market trough. Technical traders may use these points as signals to enter or exit positions based on the spacing and frequency between swing highs and lows observed in a market.

How Do You Identify a Market Swing?

A market swing occurs when there is a trend reversal that has occurred over a period of several days to weeks. Several technical indicators can be used to identify or confirm the occurrence of a swing, such as the Accumulative Swing Index (ASI) and the McClellan Oscillator. Kagi Charts and Gann Charts may also be used to identify swing trends by removing some of the shorter-term market noise.

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