Disadvantages of Swing Trading

By Barry Burns

Although swing trading has its benefits, those benefits come with trade-offs. The term swing trading originally referred to holding a position for just a few days. However, the term has expanded in popular usage and now often refers to holding a position overnight (at least two days to distinguish it from day trading), but not as a long-term investment of a year or more.

Consider the following disadvantages and challenges of swing trading:

  • Markets can make dramatic moves overnight while you’re sleeping and the market is closed. If such a move is against your trade, it can be a rude awakening when you check your position the next morning. Even placing stops doesn’t always protect you from that.

    Discover how to use options to hedge your positions against overnight risk. They can provide better protection against major gaps than protective stops.

  • When trading stocks, swing trading normally doesn’t provide you with the same amount of leverage as day trading.

  • You tie up your capital longer with swing trading than with day trading.