Introduction to Swing Trading: How to Profit Steadily Amid Market Fluctuations?

Question

When it comes to investment and wealth management, most people’s first reaction is to hold stocks long-term or save money in stocks. However, this approach has a very long profit cycle, and many investors lack patience. Conversely, intraday trading carries extremely high risks, almost equivalent to gambling. Between the two, swing trading has emerged as a compromise choice for most people. This trading method relies on market cyclical fluctuations, capturing profits by entering at lows and exiting at highs, making it especially suitable for traders who hope to generate returns within the medium term by leveraging market changes.

Swing trading typically lasts from several weeks to several months. Investors do not need to monitor the market all day and can use fragmented time for market research and decision-making. Unlike pursuing extreme returns, successful swing traders often aim for a stable return of around 50%. This article will systematically outline the core process of swing trading, suitable asset classes, practical techniques, and strategies for applying leverage tools.

The Four Key Steps of Swing Trading

Step 1: In-depth Analysis of the Market Environment

The foundation of swing trading is to capture events that will ferment over the long term—whether it’s changes in industry fundamentals, monetary policy cycles, or geopolitical shocks. These events do not dissipate suddenly in the short term, providing traders with ample time windows to position and adjust.

Instead of paying attention to every minute movement, it’s better to follow news daily, understanding changes in economic policies, industry development, and market sentiment. This macro-level awareness often helps traders grasp medium-term trends better than technical analysis.

Step 2: Select Liquidity-Rich, Clearly Trending Assets

Assets suitable for swing trading should have three characteristics: relatively stable trend, clear trend direction, and sufficient trading volume. Only then can traders smoothly execute entries and exits during market fluctuations. Conversely, assets with low trading volume tend to lack liquidity during significant adjustments, making it difficult to sell at the expected price.

Step 3: Precisely Judge Entry and Exit Timing

In swing trading, fundamental analysis is the prerequisite, while technical analysis is the key to victory. Tools like MACD, KD stochastic indicator, and Bollinger Bands are commonly used to identify trend direction. Meanwhile, support and resistance levels directly influence the timing of buying and selling.

Step 4: Set Scientific Stop-Loss and Take-Profit Levels

Abandon the obsession with “perfect trades,” meaning don’t expect to buy at the lowest point and sell at the highest. Instead, set reasonable risk control points for each trade; being able to stably capture the main swing profits is already a success.

Which Assets Are More Suitable for Swing Trading?

Since swing trading targets relatively longer market cycles, major indices, industry indices, exchange rates, and precious metals are most suitable. Compared to these, individual stocks tend to be less stable, more susceptible to single-factor shocks, and easier for major funds to manipulate, which can disrupt the expected swing rhythm.

If you must swing trade stocks, prioritize large-cap blue-chip stocks—such as tech giants Apple (AAPL), Microsoft (MSFT), or semiconductor leader TSMC (TSM). Their dominant positions in their respective fields mean they tend to rise with industry growth. Even if the industry enters a downturn, these leaders are less likely to change their long-term trend due to the transfer of a few orders.

Five Practical Techniques for Swing Trading

Technique 1: Track Interest Rate Hike/Cut Cycles and Currency Linkages

Take the US dollar as an example. The Federal Reserve’s policy goals focus on inflation and employment—two key indicators that often take months or longer to form clear trends. Therefore, interest rate hike or cut cycles usually last more than half a year.

When the Fed begins a rate hike cycle, the US dollar often enters a multi-month rally. Traders don’t need to predict the exact increase but should monitor whether inflation is truly easing and employment data is improving. Once these economic indicators show signs of easing, it’s time to consider closing positions. The win rate for such swings is very high because the policy logic is clear and lasts long.

Technique 2: Enter When Breakthrough Technologies Emerge in Industries

When revolutionary technologies like ChatGPT appear, the market will chase related industries for a considerable period. Whether or not the technology truly changes the world, capital enthusiasm will not fade in the short term. Going long on related industries at this stage can yield substantial profits.

However, directly betting on individual companies carries higher risk, as many fringe firms may leverage hype to promote themselves. A safer approach is to invest in ETFs or indices of the industry, diversifying away the uncertainty of single companies. Exit timing can be after the price breaks previous highs or before earnings reports, as such hype-driven concepts tend to overheat. The key is not to be greedy and to leave some profits for latecomers.

Technique 3: Long Cycles of Supply-Demand Imbalance Products

Products with long production cycles—such as agricultural commodities and chips—are most prone to short-term supply-demand imbalances that cannot be quickly rectified. When conflicts like Russia-Ukraine cause food shortages, investing in soybeans, wheat, corn, and other agricultural products can be advantageous. Similarly, during chip shortages, since wafer capacity cannot be rapidly expanded, this imbalance may last 1-2 years, suitable for swing trading.

In contrast, products with easily expandable production lines like masks or commodities like oil—whose prices are easily controlled by output—have market cycles that change too quickly, making them unsuitable for swing trading and better suited for short-term trading.

Technique 4: Liquidity Policies and the Logic of Gold and Digital Assets Allocation

Global real economy growth is limited by factors like population and productivity, while central banks’ ability to print money is nearly unlimited. During the COVID-19 pandemic in 2020, the US printed $4.5 trillion, causing the dollar supply to double in a short period, but actual assets could not grow proportionally. At this time, safe-haven assets with fixed or steadily increasing total supply—such as gold and Bitcoin—became capital refuges.

These assets are very suitable for trading around QE (quantitative easing) or QT (quantitative tightening) cycles. Since policy cycles usually last several months or half a year, traders can set relatively relaxed exit periods. Similarly, scarce assets like prime real estate in major cities also appreciate in value amid “money devaluation.”

Technique 5: Confirmed Technical Bullish Patterns

Fundamentals determine the long-term direction, but swing trading also considers market sentiment and behavior:

Most people are reluctant to admit losses and tend to sell in a short-sighted manner.
Moving averages represent the average cost of investors over a period.

The longer the cycle, the more people’s costs are reflected in that moving average. The subtlety of swing trading lies in daring to buy strong assets, especially those that have long oscillations and suddenly break above previous highs.

For example: a commodity has been fluctuating between 20-30 yuan for a long time, then suddenly a buyer rushes in at 35 yuan or higher. This signals strong confidence from institutions or big players about the future, attracting more participants. As long as you confirm this is a “long-term fermented event” rather than short-term hype, the success rate will be very high.

Application of Leverage Tools in Swing Trading

Although the above swing trading strategies have high win rates, some markets have limited volatility—for example, forex exchange rates sometimes fluctuate only around 10 percentage points. In such cases, consider using Contracts for Difference (CFDs) to amplify gains.

What is a CFD?

CFD, or Contract For Difference, is a derivative that allows traders to speculate on price movements without owning the underlying asset. Forex margin trading is a common form of CFD.

Advantages of CFDs:

Two-way trading: can go long or short, flexible operations
Flexible leverage: up to 200x, allowing small capital to control large positions
Controlled risk: maximum loss limited to initial capital, avoiding debts—more secure than futures

CFD vs Futures

While both involve leverage, CFDs do not involve direct ownership of the underlying asset, and the maximum risk is the initial investment. Futures can lead to margin calls or additional margin requirements, increasing risk. Therefore, CFDs are more suitable for swing trading and longer-term positioning.

Practical Example

In early 2022, the Fed began a rate hike cycle, and the US dollar index rose accordingly. Based on inflation data analysis, US inflation peaked and subsequent rate hikes were more preventive. From March 2022 to October, when the September CPI was released, the dollar index increased by about 15%. Using 10x leverage CFD trading, the return per unit of capital could reach 150%.

This kind of swing based on clear policy logic, with a long cycle, is very suitable for leveraging gains through CFDs.

Three Major Advantages of Leverage Tools:

✔️ Moderate leverage amplifies returns, allowing small funds to participate in major trends
✔️ Risks are clearly controllable; no worries about black swan events leading to debts
✔️ Both long and short positions can be taken, offering flexible trading strategies

Summary

Swing trading is essentially a trend-following strategy. Its greatest advantage is that it doesn’t require constant market monitoring—just capturing medium-term trends allows you to wait for profits to realize. Compared to high-risk, intraday trading with daily pressure, swing trading offers a faster way to turn over funds and provides a balanced option for most traders. Mastering macro analysis, asset selection, technical pattern recognition, and combining appropriate leverage tools can help build a stable swing trading system.