Tips for Profitable Swing Trading: Master Five Key Strategies

Swing trading as an investment method positioned between buy-and-hold and day trading is increasingly favored by investors. Unlike value investing that often takes years to realize, swing trading profits by capturing medium-term market fluctuations, typically over a period of several weeks to months, offering high flexibility. Many believe that holding assets is the way to make big money, but in reality, mastering the correct swing trading techniques and achieving a steady profit of around 50% is already considered quite successful.

Four Core Steps of Swing Trading

Step 1: Insight into Market Trends and Fundamentals

The foundation of swing trading is understanding “long-term fermenting events.” These may include industry structural changes, shifts in monetary policy, or economic cycle variations. Since such events do not resolve quickly, investors do not need to compete in split seconds like day trading, nor do they have to wait long-term like traditional investing. By paying attention to news, economic data, and policy adjustments daily, traders can find entry points for swing trading.

Step 2: Carefully Select Suitable Trading Targets

Not all assets are suitable for swing trading. The best targets should have the following characteristics: relatively stable trends, clear direction, and sufficient trading volume. Compared to individual stocks, swing trading is more suitable for major indices, industry indices, exchange rates, or commodities like gold, rather than stocks easily affected by single factors.

For swing trading individual stocks, prioritize large-cap, heavyweight stocks such as Apple (AAPL), Microsoft (MSFT), TSMC, etc. These leading companies usually represent industry trends, have strong risk resistance, and are more suitable for medium-term swing positioning.

Step 3: Use Technical Analysis to Determine Entry and Exit Points

In swing trading, fundamental analysis lays the groundwork, while technical analysis is the key to winning. Common tools include MACD, KD indicators, and Bollinger Bands, used to identify trends and support/resistance levels. With these tools, investors can more accurately judge when to enter and exit positions.

Step 4: Set Reasonable Stop-Loss and Take-Profit Points

Abandon the illusion of “buying at the bottom and selling at the top.” Setting scientific stop-loss and take-profit strategies is crucial. Steadily capturing profits from major swings is the path to success in swing trading.

Five Major Swing Trading Strategies and Practical Examples

Strategy 1: Interest Rate Cycles and Currency Trends

Taking the US dollar as an example, Federal Reserve decisions mainly focus on inflation and employment issues. Since these problems do not resolve overnight, interest rate hike and cut cycles often last six months to a year or longer.

When the Fed begins a rate hike cycle, consider going long on the US dollar. This trend can usually last several months; there’s no need to precisely predict the peak, just monitor whether inflation indicators start to ease. For example, when inflation peaks and begins to decline, consider closing long positions. The win rate of such swing trades is often very high.

Strategy 2: Investment Opportunities from Industry Changes

When revolutionary technology emerges, market funds tend to chase that industry for a considerable period. When ChatGPT was launched at the end of 2022, many believed it would change information search habits, sparking a wave of investment.

Investing in individual stocks carries higher risk due to hype and speculation. Investing in ETFs or indices of that industry is a more stable choice. Exit timing can be set when prices break previous highs or before earnings reports, to avoid bubbles caused by overhyped concepts.

Strategy 3: Long-Cycle Products with Supply-Demand Imbalances

Products with longer production cycles (such as crops, semiconductors) tend to form short-term supply-demand imbalances that are difficult to resolve quickly. Examples include food shortages caused by the Russia-Ukraine war or chip shortages.

For agricultural products like soybeans, wheat, and corn, their production cycles determine price fluctuation periods. Even with strong demand, supply cannot be rapidly increased in the short term. Similar chip shortages may last 1-2 years, suitable for swing trading over several months. Conversely, products with easily adjustable production lines (like masks) or commodities with prices heavily influenced by policies (like oil) are not suitable for swing trading and should be approached with short-term strategies.

Strategy 4: Liquidity Policies and Hedging Assets

Global GDP growth is constrained by real economy, but governments can print unlimited money. During the COVID-19 pandemic in 2020, the US released $4.5 trillion in liquidity, greatly increasing dollar supply but reducing currency purchasing power. In this context, assets with fixed or steadily increasing total supply, such as gold and Bitcoin, become popular hedging tools.

These assets are especially suitable for responding to policies like quantitative easing (QE) and quantitative tightening (QT). Exit timing can be set several months or even half a year later, as policy shifts usually do not happen abruptly.

Strategy 5: Assets with Strong Technical Momentum

Market sentiment also influences swing trading success. Most investors are reluctant to cut losses, and the tendency for short-term profit-taking means that the moving averages and the average cost of investors’ holdings provide support. Therefore, the logic of swing trading is to chase strong assets, especially those that break out suddenly after a long consolidation period.

When a stock has been fluctuating in the 20-30 yuan range for a long time but suddenly is bid up to 35 yuan, it indicates a strong upward momentum. Judging whether this is driven by “long-term brewing events” can significantly improve the win rate of swing trades.

Contracts for Difference (CFD): Amplify Swing Trading Profits

Although the above swing trading strategies have high win rates, some markets have limited volatility. For example, forex often fluctuates only around 10%, which may not meet some investors’ profit expectations. In such cases, CFD tools can be useful.

CFDs are instruments that do not involve directly owning the underlying asset but allow trading on price movements. Compared to futures, CFDs have the advantage that maximum loss is limited to the invested capital, avoiding debt risks. They also support two-way trading with flexible leverage (up to 200x), making them especially suitable for short- to medium-term operations.

For example, in 2022, when the US started raising interest rates in March, the dollar index rose accordingly, and by October, after CPI data was released, the dollar index had increased by about 15%. If a trader used 10x leverage for swing trading, the theoretical profit could reach 150%. This kind of trend-based swing trading, with controlled risk, is particularly suitable for CFD trading.

Three Core Advantages of Swing Trading

Compared to other trading methods, swing trading has unique advantages:

• Trend-following, no need to watch the screen constantly, suitable for general investors • With appropriate tools, small capital can achieve substantial returns • Flexible long and short positioning, adaptable to various market environments

Essentially, swing trading is a trend-aligned strategy. As long as you grasp the market momentum brewed over the long term, you can achieve steady profits in a relatively relaxed rhythm. This is precisely why swing trading is becoming more popular.