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Swing trading, for the most part, is about knowing when to initiate a trade. They aren’t concerned with how to manage their trades or when to leave their positions. However, experienced traders understand that trade management and leaving at the proper time are the hallmarks of successful trading. So how long should you hold a swing trade?
You should hold a swing trade until your predetermined exit criteria are reached. Daily price changes typically last a few days to a few weeks. This implies you should have a trading strategy that specifies how you wish to exit your trades, which could be dependent on time, the appearance of the opposite setup, a stop loss and profit objective, or a trailing stop.
Evidently, you would like to learn more about the examples provided. We’ll go over them one by one in this piece, but first, let’s define a swing trade.
What does a swing trade mean?
Swing trading focuses on capturing a single price move rather than following the trend’s ups and downs. The goal is to ride a price swing and exit the market before a retreat or the opposite swing occurs. As a result, it is critical to understand when a price swing is likely to finish.
Since swing trading is typically done on a daily basis, only price fluctuations on that timescale are relevant. Typically, these shifts persist from a few days to a couple weeks. Swing traders frequently try to enter at the beginning of a swing and exit before it turns.
As you are aware, the price might fluctuate in an upward, downward, or sideways direction. The general strategy is to trade swings in the direction of the trend while avoiding pullbacks in the other direction. In the forex market, you can trade both up and down swings in a range market. However, in the stock market, it’s best to trade only upswings as prices have limited downward potential but unlimited upside potential.
How long should you hold a swing trade?
This is a deceptive question. Price swings on the daily timescale typically last a few days to a few weeks, therefore you should hold your swing trades for a little shorter period of time. However, the duration of each trade is determined by the current market conditions and your trading strategy.
If a price swing shows signs of reversal by the third day, it’s not worth holding the trade for longer. What counts is that you have a plan for judging when it is time to quit the trade, or that you have implemented a method to exit the trade with the greatest possible outcome.
In other words, your trading strategy determines everything. Simply execute the exit methods outlined in your trading plan.
Best exit strategy for swing trading
In general, there are a few easy methods to determine when to close your transaction. Here are some of them:
Strategy-based method
This type of exit approach involves exiting your trade when you see the opposite indication that caused you to engage it. In other words, there is a setup in the other direction, indicating that the price is going to begin a new swing in that direction. In a moving market, a downturn may be acceptable for trend followers to wait out. However, for a swing trade, it’s important to exit to avoid losing winnings.
Let us take an example. Assuming your trading approach is to go long when an oscillator (RSI, stochastic, or CCI) shows a bullish divergence, you should close your trade when a bearish divergence emerges.
Time-based method
When employing this approach, you simply select a time when you will stop your trade regardless of what happens, as long as the trade is still active at the moment — that is, your other exit strategy has not knocked you out of the market. Therefore, this strategy can be combined with any of the previous ways.
For example, you may opt to exit your swing trade utilizing the three-day rule, which states that you close your trade at the conclusion of the third day after entering the trade, regardless of whether you are in profit or loss.
Also Read: How to use RSI in Swing Trading
The use of stop loss and profit target
This is the most popular exit strategy, particularly among new traders. With this approach, you decide where you want to exit when you’re losing (stop loss) and where you want to close your trade and pocket your profit (profit target). When you’re long, you should put your stop loss beyond a support level and your profit objective before a resistance level.
For a newbie, it is best to practice set and forget, which involves setting your stop loss and profit target and then leaving. Your trade will be closed at either the stop loss with a loss or the profit goal with a profit.
The use of a trailing stop loss
Unlike the set and forget strategy, this method tracks your profit as the price rises in your favor. It might be manual or automated. For a swing trade, the best trailing strategy is to trail just below the candlestick that came before it.
How to determine which exit technique to utilize?
You may be asking which the best exit technique is to choose. Actually, there is no such thing as the best way. Simply test the numerous approaches to determine which one works best for your entry plan. This can be accomplished through backtesting, either manually or with a strategy tester. Alternatively, you can front-test them by using demo trading to determine which one works best.
Last Thoughts
The length of time you hold a swing trade is determined by your trading strategy and selected exit technique. Back testing or demo trading allows you to identify which method best suits your trading plan.
Frequently Asked Questions
How Long Should I Hold a Swing Trade?
The duration of a swing trade is determined by your trading strategy and the current market conditions. Daily swings typically last a few days to a few weeks. Hold your swing trade until your predetermined exit conditions are reached, taking into account time, opposite setups, stop loss, profit target, and trailing stop.
What Factors Influence the Duration of a Swing Trade?
The duration of a swing trade is determined by market circumstances and your trading strategy. If a price swing displays early signs of reversal, you should consider exiting. Your trading strategy, which includes exit methods such as contrary signals, time-based closures, stop loss, profit objective, and trailing stops, is critical in establishing the trade duration.
What are the Best Exit Strategies for Swing Trading?
Swing trading has several effective exit strategies, including strategy-based methods (exit on opposite signals), time-based methods (set a predefined exit time), stop loss and profit target methods (predict exit levels), and trailing stop loss methods.
