Technical Analysis and Swing Trading

Just how important is technical analysis in swing trading you might ask, and those that are participating in this form of trade will tell you that trend indicators, indices, technical data is the most important part of your life when it comes to swing trading. In the end of the day, without technical analysis, you will not have the ammo to actually do any trading in the first place. Fundamental analysis seems to have no place within this form of trading, and there are many reasons why this is so.

For one thing, the short term movements of the stock make it impossible for fundamental analysis to actually play a part. The market psychology in swing trading is very different from markets who require you to look at fundamental analysis to forecast the market properly. Here you have a market model that demands that you do plenty of stock analysis. Know the company behind the stock and know how the financial model of the company is set to behave in the market. Usually, swing traders participate in stocks that are known to have volatile price changes over a few days.

Swing trading requires that you have 1 – 4 day forecast model, and just by looking at this, you would know that fundamental analysis has no place in this at all. Well it would be unfair to say ‘at all’ in a totalitarian manner. I am sure that swing traders do use information from major news sources all over the world, focused on their market sector to base their decisions on but technical analysis seems the way to go with this kind of market trading.

When I talk about stock analysis, you need to understand that the traders involved in this are not interested in things like the fundamental value or even the intrinsic value of the stock itself, what they are most focused on are the price trends and price patterns of the stock itself. Buying and selling is the name of the game in swing trading, and it would not surprise you to know that mountains of money get moved over a period of a week by swing traders looking to hit the stock right at the moment the stock price goes up or even down. Now, are swing traders speculators on a short term basis? I am not sure.

Some swing trades hold on to a low value stock knowing that the price will move, but there is no guarantee. Most of the time, swing trades happen at the pivot point of a price pattern and you must know that there is where most of the work comes from. I mean, swing literally means the fluctuation of the value of a stock or a financial asset, and it is this swing that interests traders the most. Buy just before the stock price shoots up, that is the one overarching logic of the swing trader. If you are considering it as a route to quick cash, it might not be as easy as you think.