Some components of the swing trade.
When a trader finds themselves in a swing trade, there are going to be certain considerations that will be different than when managing a day trade. The day trade is a fairly straightforward event. The swing trade however, can be quite a bit more complex.
While the day trader knows for a fact that the trade they are in will be closed out by the end of the trading day, the trader that finds themselves in a swing trade doesn't have that simple exit plan. The swing trader is looking to maximize returns off of momentum in their stock or other financial instrument of choice.
At the swing trader is looking to buy a financial instrument, the first thing they simply must do is identify any potential support levels that will trigger a buy signal. Any decent long or buy will need support from the marketplace in order to give the trader a chance to make a profit.
Conversely, the swing trader will want to identify various levels of resistance to alert them to possible trouble spots or exit points. Since the swing trader is looking to capitalize on momentum, they will often use these points as "hard exits". Remember their goal is to simply capture the short term gains, not to make a long-term investment in the stock or other financial instrument they are trading.
Because of the shorter-term nature of a swing trade, the trader simply does not care about the long-term trend or prospects of the particular instrument they are trading. The swing trader is only worried about the next few dollars in the price of the stock they are trading.
Once the swing trader has identified the entry point and the possible trouble spots or exit points, the job of the trader is to keep the trade alive as long as possible while still within the confines of the potential exit. Needless to say, one of the most important things for a swing trader is to lock in profits as soon as is possible. This can be done by several different methods, but most involve identifying shorter-term clusters of orders in the markets as identified by minor support and resistance zones.
Typically a swing trader will move their stops to breakeven as soon as the first potential cluster of orders that makes a minor resistance zone is broken above. At this point in time the trader knows that they can no longer lose money. Normally there is a second cluster of orders or resistance that the trader has their eye on. Once this gets broken, the trader will typically move their stop loss to just below the first cluster that triggered their move to breakeven, thus locking in a certain amount of gains.
The one main difference that a trader will have to overcome if they are used to day trading, as the fact that you have to be able to "let a trade run" as opposed to closing a trade out in short order. This takes a certain amount of confidence and comfort in knowing that you survive exposure to the markets. Once this psychological barrier is overcome, most day traders find that they actually make pretty decent swing traders as well.
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