Average Income of a Swing Trader: How Much Do Swing Traders Make?

Average Income of a Swing Trader

Swing trading is a popular trading style that attracts many new traders to the markets. It’s tends to be less stressful than day trading and allows staying in a trend for longer periods of time. It doesn’t require active trade management.

In this article, we’ll cover the profitability of swing trading and provide useful tips to improve your performance as a swing trader.

Swing Trading Explained

Swing trading is a major trading style along with scalping, day trading, and position trading. In swing trading, traders aim to take advantage of the medium-term swings in the market. They try to catch the strong directional moves on timeframes like the daily or 4-hour. 

Unlike scalping or day trading, swing trading gives traders more time to make trading decisions which is why this trading style is often the preferred style of new traders. If you’re just getting started with trading, make sure to master swing trading before switching to shorter-term trading like day trading

…swing trading will teach you the importance of being patient

If you can’t make a profit as a swing trader, there’s no reason to expect that you can make it as a day trader. In addition, swing trading will teach you the importance of being patient. A trait that will come in handy if you decide to trade short-term.

While most of the trading rules of day trading apply to swing trading, bear in mind that fundamentals may play a more important role when swing trading. Over the longer-term, fundamentals tend to be a major reason behind strong moves in the price, which is why you should stay up-to-date on major reports such as company earnings, central bank decisions and comments, inflation rates, and labour market reports if you’re trading forex.

Since swing trading involves less active trading than scalping or day trading, swing traders usually face lower trading costs which is a major advantage of this trading style. Also, bear in mind that swing trades require wider stop-loss levels to withstand larger price swings, which inevitably leads to smaller position sizes to stay within your risk-per-trade.

Is Swing Trading Profitable?

Just like with any other trading style, the profitability of swing trading depends on how you approach your trading. There are profitable and unprofitable swing traders, just like there are profitable and unprofitable scalpers, day traders, and position traders. 

Since swing traders trade on longer-term timeframes, patience is an important prerequisite in becoming a successful swing trader. Swing traders usually hold their trades open for a few days, and profitable trading opportunities may not be present every single day. However, this also means that swing traders have more time to make trading decisions and analyse the market than day traders.

Whether you should swing trade or day trade the market usually depends on your personal goals and circumstances. 

  • Are you a patient trader who wants to spend less time in front of your trading platform?
  • Do you have a regular job that prevents you from actively managing your trades?
  • Are you a beginner trader who wants to develop a profitable trading strategy without feeling rushed to take a trade?

Then swing trading may be a viable option for you.

If done right, swing trading can be profitable. Markets tend to form strong directional moves on longer-term charts, especially if those moves are triggered by important market moves. Swing traders don’t have to worry about short-term market noise and corrections due to their wider stop-losses and longer trade horizons.

How Much Do Swing Traders Make?

A successful swing trader can easily reach the profits of a successful day trader. While day trading involves more trades that are traded with larger position sizes, the success rate of day traders is usually slightly lower compared to swing traders. 

It’s not unusual for the market to move hundreds of points over the course of several days. Whether you’re trading stocks, currencies, or commodities, you’ll be able to find attractive swing trading opportunities that could lead to large profits.

For Example
Imagine a swing trader with a $10,000 account who wants to trade a swing in the EUR/USD trade. Let’s say the pair is completing a correction on the daily chart and has reached the 61.8% Fib level of a recent trend move, and hawkish comments from the European Central Bank have started to push the pair up at this key support. 

A swing trader could use the 1-hour chart to find suitable entry levels, with a stop-loss that could be placed at half the size of the pair’s daily ATR (Average True Range). If the trader’s idea proves to be right, the trade could return a few hundred pips with an initial stop-loss of around 40 pips.

Let’s say the trader wants to risk 4% of his account balance on this trade. With a 40 pips stop-loss, the total position size would need to be 100,000 units of the base currency (EUR), i.e. one standard lot. With this position size, each pip would equal $10, and if the trade hits stop-loss the total loss for the trader would be $400 (4% of his account size). 

Of course, trading costs would lead to a slightly larger loss, so make sure to include the spread of the pair when making your calculations. With an initial risk of $400, our swing trader could potentially make a profit of well over $1,000. 

Not all trade setups are the same. Sometimes, swing traders will have to exit their trades earlier if there is a significant change in the fundamental landscape. But, most of the time, swing traders will be able to ride the trend for a few hundred points, especially if they have an effective exit strategy for their trades.

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Tips to Become a Profitable Swing Trader

Here are a few tips on how to become a profitable swing trader. While most tips also apply to day traders, there are certain differences in those two trading styles that need to be addressed. 

  • Find setups that work for you – While some swing traders base their trades either on technicals or fundamentals, the best-performing swing traders combine these two analytical disciplines to find high-probability trade setups. As a swing trader, you need to find those setups that work for you. Some traders may have success trading breakouts after important market reports, while others may prefer to trade corrections of strong directional moves. In any case, find the setups that work with your trading strategy and stick to them.
  • Be patient with your trades – A major difference between swing trades and day trades is that swing trades take longer to form and develop. This means that swing traders need to have patience when swing trading the markets. The best way to develop patience is to create a set of trading rules to be followed religiously. You need to have strict rules for entering trades, staying on a trend as long as possible, and exiting trades at the most favourable price-levels.
  • Manage your trades ahead of important news – Depending on your trading plan, you may want to close your active trades ahead of important market-moving events. While those events can be used to enter into a trade, it’s smart to close your active trades if you’re not sure what market impact those events will have. Examples of important market news include central bank meetings, company earnings, the announcement of an SEC investigation in a company, labour market numbers, etc.
  • Don’t ignore fundamentals – Although some swing traders do have success with trading the markets solely from a technical standpoint, it’s wise to stay updated on important market fundamentals. Fundamentals can trigger strong and long-lasting trends in the markets. While technical analysis can identify a trend reversal after it has already happened, fundamentals may provide valuable clues to anticipate reversals in advance which may give you better entry points.
  • Use intermarket analysis – Last but not least, including intermarket analysis in your daily swing trading can significantly improve your performance. Intermarket analysis refers to analysing other related financial markets to find hints and clues about the future direction of the market you’re trading.
For Example
Forex traders may want to follow yield differentials between different currencies to anticipate what currency could see increased demand in the coming days. If you’re trading the EUR/USD pair, you could follow the 2-year US and German bond yield differentials which often provide valuable clues about an upcoming breakout.

If you’re trading commodity currencies, such as the Canadian or Australian dollar, make sure to follow developments in the oil market (Canada is a major oil producer) and copper market (Australia is a large copper exporter) to anticipate future moves in the respective currencies.

Stock traders may want to follow the bond market, stock market indices, and the performance of overseas indices like the Nikkei 225 or ASX 200.

Final Words

Swing trading is a popular trading style that can return attractive profits to the patient swing trader. Unlike day traders, swing traders hold their trades for a few days, which means that market fundamentals can play an important role in the performance of the trades. 

If you’re a patient trader with a well-defined, rules-based trading strategy, then there is nothing in your way to become a consistently profitable swing trader.

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