Swing trading is an active type of short-term investing. Swing traders use technical analysis to anticipate stock movement and trade based on these predictions with the ultimate goal of realizing capital gains. Unlike day trading, a swing investor purchases stocks on the market and holds them for a few days or weeks.
What is swing trading?
Swing trading is an active, short-term form of investing. It is the opposite of passive investing, which involves purchasing and holding assets for long-term profit. Swing trading stocks requires a risk-reward analysis to determine point of entry, stop loss and exit points that will result in capital gains.
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- Access to international stock exchanges
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- $50 in free trades
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Our selection of top picks is based on the same criteria as our annual Stock Trading Platform Awards. This is updated yearly to reflect changes in the market.
"Best for" picks are those we've evaluated to be best for specific product features or categories – you can read our full methodology here. If we show a "Promoted" pick, it's been chosen from among our commercial partners and is based on factors that include special features or offers, and the commission we receive.
This isn't an exhaustive list of all the trading platforms out there. What's best for you depends on your own investing strategy, budget and financial goals.
Swing trading vs day trading
Swing trading and day trading share a lot of similarities. For example, they both involve a strategy and technical analysis, and both are active investing methods. However, there are several differences to consider too. The main difference is the frequency of trades. Let’s explore swing trading vs day trading in the table below.
| Swing trading | Day trading | |
|---|---|---|
| Frequency | Multiple trades per week | Multiple trades per day |
| Costs | Lower | Higher |
| Return period | Longer | Shorter |
| Time commitment | Periodic | Constant attention |
| Trading platform needs | Can use a brokerage account | Need up-to-the-minute trading software |
Keep in mind that many active investors participate in both day trading and swing trading simultaneously. By using both tactics, you may be able to diversify your profits further. However, neither strategy is for beginners.
Pros and cons of swing trading
Pros
- Less of a time commitment than day trading.
- You can use a regular brokerage account.
- You can earn an income from short-term gains if you’re skilled at swing trading.
- Active investment strategy that can help diversify your portfolio when combined with passive strategies.
Cons
- Swing traders can miss out on long-term gains by focusing solely on short-term gains.
- More strategy is required than passive investing. Swing trading requires a solid strategy in order to determine what and when to buy and sell.
- Weekend and overnight market risk.
Swing trading strategies
In general, active trading requires some kind of strategy. Your strategy may evolve over time as you become more skilled, but it’s important to start somewhere. Swing trading usually involves technical analysis to employ your strategy. Below are commonly used swing trading strategies to look into further.
- Using support and resistance triggers
- Assessing moving averages to identify bullish or bearish crossover points
- Contrarian investing (or “fading”)
- Using daily and 60 minute charts
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Bottom line
Swing trading is an active form of investing that yields profits over a short period of time. If you’re ready to try swing trading, be sure to spend time gathering knowledge and developing a strategy. For those who don’t have the means to participate in swing trading, consider long-term investing instead.
Frequently asked questions
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Yes, swing trading in Canada is completely legal. However, you must be compliant with tax regulations. Swing trading in Canada is usually considered business income because it requires active efforts to earn. This means you must track your gains and losses and report them on your tax return as business income.
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Yes, swing trading in Wealthsimple is possible.
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Scalping is a trading method that involves profiting off small price changes and making quick profits off reselling. Swing trading is the process of purchasing stock, holding it for a period of a few days to a few weeks, and selling it for a profit. The main difference lies in the volume of stock. Scalping has a focus on high volume stock purchases and resales.
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Yes, swing trading with stocks is very common.
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It depends on how frequently you swing trade. Like day trading, swing trading is considered active trading and the gains it generates can therefore be considered business income. TFSAs are designed for personal use only, so if you’re somewhere in between a part-time and full-time trader, you could be taxed on your gains within your TFSA.
