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Thursday, July 26, 2012

7 random advantages of swing trading

In this post I want to continue the topic of swing trading and to cover the advantages of swing trading in financial markets. I think I will have to talk about disadvantages too. But that will be in my future posts. I have already mentioned in my previous post that I consider myself a swing trader. Let me give reasons why I have chose this way to trade the markets. 

Firstly, you have bigger opportunities to have better risk/reward ratio. One should know that in order to have consistent profit in trading one must have his profits bigger than losses. A swing trader usually stays longer in the market and as if the price goes in the direction he has predicted he will have much bigger profit than his initial stop loss order is. If you compare that to scalping where a trader might close 20 consecutive trades profitably and then one bad trade wipes away all of his profit due to large stop loss and too small profit targets. 

Secondly, it gives you a chance to take advantage of current momentum in the market. When markets move nowhere it is difficult to make money, but when they catch momentum and start running in one direction, it is quite easy to have winning trades. 

Thirdly, you do not have to sit glued to your computer screen all day long. Doing a daily analysis for about half an hour is enough. Monitoring your open trades does not take a lot of time either. 

Fourthly, it does not give you so much psychological stress and does not require so much accuracy, concentration and ability to react fast as is necessary in day trading. Stress handling is essential in trading and in swing trading you have an upper hand. 

Fifthly, your trades are prepared and you are proactive rather than being reactive. You plan your trades and do not react to some rumors, news and other similar things that a day trader might have in mind while making his trades. 

Sixthly, you do not have to worry about exact entry level. This is impossible for day traders. If you missed your entry level by 20 pips (in day trading) it is worthwhile thinking whether to take a trade or not. In long term trading this is never a problem as you are planning for a ride of 500 pips or more (in Forex). The same can be said about stock or commodity trading (sorry for ignoring you guys). 

And lastly (it naturally flows out from point number six) you do not have to worry so much about exit levels. By this I mean that you do not have to make spontaneous decisions as exit levels are also pre-planned. 

P.S. By the way, if you are trading Forex, you can also make money from interest (if you are go long on high yielding currencies).

Ok, hope you enjoyed the post. 

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Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.