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ETFs, known as exchange traded funds, are a popular choice amongst swing traders. Today we will share the basics on how to swing trade ETFs for maximum profit potential.
Understanding ETFs and Swing Trading
An ETF is traded just like a stock on the market and holds assets such as stocks, commodities, or bonds. They have variable price changes throughout the trading day as they are bought and sold, just like stocks do.
There are a few advantages to trading ETFs, such as being able to diversify, the ability to sell short, and no minimum purchase requirements. They generally have lower prices, making them a good choice for investors working with little cash flow.
Swing Trading is a trading strategy in which you purchase shares and hold them for a small period of time, though this period of time is not defined as a certain absolute time period. You may hold a stock for a few days, a few weeks or even a few months, depending on the action of the stock.
The Benefits of Swing Trading ETFs
There are a number of benefits of swing trading ETFs, which make this strategy a popular choice for many investors:
- Opportunity for Gains With Less Time:Since you will likely only be holding the ETF for a few days or a few weeks depending on the market, you will likely see a return within a relatively short period of time. Unlike long term investors who may wait years to see any return on investment, you will likely see a return rather quickly.
- Free Up Capital:When you have a lot of money tied up in long term investments, you could potentially find yourself with a lack of funds to continue investing in new opportunities that come along. When you swing trade, you have the ability to adapt to the market and have capital when you need it.
Once you understand the basics of how ETFs work and how to swing trade, you are ready to understand how to swing trade ETFs.
Here is How to Swing Trade ETFs:
Step 1: Research Which Industry You Want to Invest In:
The first place to start in swing trading is learning how to find the best ETFs to swing trade. You can do this by researching various industries and sectors. For example, perhaps you want to invest in a biotechnology ETF or the automotive industry.
Step 2: Choose the ETF that Meets Your Criteria
In our article on how to pick stocks for swing trading, we cover a few indicators that you can use to formulate your swing trading strategy. For example, you may want to choose a stock which has a decent amount of volatility. What this means is the price is constantly changing and going up and down. This gives you plenty of opportunity to possibly earn a nice return. However, it is important to note you will want to choose an industrywhich ison an upward trend, otherwise if you hold the ETF too long you risk losing money.
Step 3: Use a Suitable Online Broker
Choosing the right online stock broker for swing tradingETFs is essential if you want to be profitable. Be sure to carefully research all applicable trading laws, restrictions, and regulations. You will also want to make sure the online broker charges a reasonable fee. Do your homework here and it will make your life much less complicated.
Step 4: Create an Exit Strategy
Since the whole point of swing trading is to only hold the stock for a short period time of a few days or weeks, it is essential you have a strategy to exit. There are a few strategies for this, but the common one is to have a set price in mind and exit at that point once that price is reached. Learning how to read stock charts and brushing up on candlestick patternscan help you determine a target price for the highs and lows so you know when it’s time to exit.
Step 5: Practice and Learn
One of the best things you can do in the very beginning is to practice using stock market simulation games. Track your progress, the things you learn, and develop your strategies. Keeping a journal can be very helpful.
Step 6: Implement the Plan
When you are feeling confident in what you have learned about swing trading and ETFs and you have developed your own strategy and done a suitable amount of research, you are ready to start trading!
Do you have any tips for beginner traders to share about how to swing trade ETFs? Share your thoughts in the comments below or join the discussion on our stock forums!
FAQs
Swing Trading the ETFs. A good ETF trading strategy involves identifying the most liquid categories and then narrowing the search to 4. We recommend using only 4 ETFs on a daily basis because it is easier to analyse and follow up. In every trading day, some sectors will perform better than others.
How do you swing trade successfully? ›
How to swing trade stocks
- Open a live trading account. Open a live trading account to start swing trading stocks. ...
- Research markets using technical analysis. ...
- Choose an asset to swing trade. ...
- Use risk management conditions. ...
- Monitor your position. ...
- Exit trade.
As far as patterns are concerned, the ascending and descending triangles are considered to be the best. The top swing trading strategies are Fibonacci Retracement, Trend Trading, Reversal Trading, Breakout Strategy and Simple Moving Averages.
What is the best indicator combination for swing trading? ›
In conclusion, swing trading can be a profitable strategy when combined with the right set of indicators. The best swing trading indicators on TradingView include moving averages, RSI, Bollinger Bands, MACD, Stochastic Oscillator, Fibonacci Retracement, ATR, Ichimoku Cloud, and Volume Profile.
Which are the best ETF for swing trading? ›
Best ETFs for Day Trading – Updated Lists and Statistics
| Highest Volume (unleveraged) | SPY | FXI |
|---|
| Most Volatile (leveraged) | LABD | BOIL |
| Most Volatile (unleveraged) | BITO | VXX |
| Best ETFs for cash accounts | SPY/SH | QQQ/PSQ |
Swing traders will often look for opportunities on the daily charts and may watch one-hour or 15-minute charts to find precise entry, stop-loss, and take-profit levels. Swing trading requires less time to trade than day trading. It maximizes short-term profit potential by capturing the bulk of market swings.
How many swing traders fail? ›
We've seen estimations that as many as 90% of swing traders fail to make money in the stock market – meaning they either break even or lose money.
Which time frame is best for swing trading? ›
The best timeframe for swing trading includes 1-hour, 4-hour, and daily timeframes. Here's why: 1-hour charts: Short enough to give you intraday insights but long enough to help you spot broader swings. 4-hour charts: A balanced point of view for identifying short-term and medium-term trends.
How long should you hold a swing trade? ›
The holding period for a typical swing trade falls somewhere between two days and two weeks. Of course, there are exceptions where some trades are held for longer periods of time – but we'll talk about that later on. For now, let's focus on the average holding period for a swing trade.
What is the 1% rule in swing trading? ›
The 1% risk rule is all about controlling the size of losses and keeping them to a fraction of the account. But doing this requires determining an exit point (the stop loss location), before the trade, and also establishing the proper position size so that if the stop loss is hit only 1% of the account is lost.
Aiming for a 5-10% monthly return is a common and a realistic swing trading return. To translate this into a living wage, you'd need to define what “making a living” means for you. For instance, if your monthly expenses are $3,000, a capital of $30,000 with a 10% return would suffice.
Why is swing trading so hard? ›
Swing trading can be difficult for the average retail trader. Professional traders have more experience, leverage, information, and lower commissions; however, they are limited by the instruments they are allowed to trade, the risk they are capable of taking on, and their large amount of capital.
What is the most powerful indicator in trading? ›
The best technical indicators for forex traders are the RSI, MACD, and Bollinger Bands. Most FX traders use these as their primary indicators. There are other indicators available in the market, but these three tend to be the most commonly used for predicting future price points.
What is the best RSI length for swing trading? ›
The default RSI setting of 14 periods is suitable for most traders, especially for swing traders. But some intraday traders use different settings when using the RSI indicator for day trading.
Do people swing trade ETFs? ›
Yes, ETF swing trading is definitely possible – and it can be quite profitable if done correctly. However, there are a few things you need to take into consideration before deciding if this investment strategy is right for you. First and foremost, you need to have a firm understanding of what an ETF actually is.
What is the best way to trade ETFs? ›
What are the Best Practices for Trading ETFs?
- Use Limit Orders. Use limit orders when buying or selling ETFs. ...
- Know Your Market. Be mindful of volatile market periods. ...
- Use Caution Near The Market Open And Close. ...
- Go With The Flow. ...
- Reach Out For Assistance.
The most effective leveraged ETF trading strategy revolves around short-term trading, specifically day trading or swing trading. Leveraged ETFs are best suited for speculation on an index's short-term momentum rather than long-term investments due to their high-risk and high-cost structure.
