Best Leverage for Swing Trading


Swing trading can be one of the most profitable ways to make money — and it’s less stressful and less demanding than day trading. Maybe you have an interest in the idea of swing trading, or perhaps you’ve decided to begin your career in stocks by starting simple. If that’s the case, you’re probably wondering how much leverage to use for your account and where the sweet spot is to start making money.

The legal amount of leverage provided to swing traders is 50:1. You do not, however, need to use all of your leverage for one trade, especially as a beginner. It’s also not recommended to use all of your leverage at once. Consider how much leverage is most beneficial, and your goals.

It’s important to be aware that the more leverage that you use, the more you may gain or lose. This article explains the best leverage for swing traders, what swing trading is, and if swing trading is suitable for you. Read on to learn more.

What Is Swing Trading?

Most people have heard of the stock market and long-term investors who make or lose millions. It’s a common theme in movies and business-related content. Brokers are often associated with day traders and are infamous for reaping the benefits of the day traders who do all of the work.  

Day trading is a familiar concept. Day trading is an adrenaline-inducing career that often leaves people burnt out and exhausted from the constant highs and lows. It’s also a career that requires an extreme amount of concentration and dedication to the field. 

Swing trading is comparable to day trading; however, swing trading is a style of trading that holds an asset for anywhere from a few days to a few weeks before trading. It’s also less stressful than day trading and can be an excellent beginning point for new traders. 

Swing traders have more time than day traders do to consider their investment. Day traders only have a few minutes or hours before exchanging. On the other hand, swing traders have more time to analyze the data before deciding what and how much to trade. 

What Is Leverage in Trading?

Before beginning a career in stocks or day or even swing trading, one must consider the basic steps before diving deep into trading. One of the most common concepts of trading is a mechanism known as leverage. 

Leverage in trading is essentially a loan. Leverage means borrowing money and using those funds to increase a trading position beyond the amount of money in the trader’s account. 

A broker gives the investor credit, then the investor or trader only has to pay a percentage of the value of an asset. A trader uses borrowed funds to make a bet that a stock will increase value over time. These bets sometimes pay off, and sometimes these bets can cost you money depending on the leverage that you’ve borrowed. 

Most experienced swing traders recommend against using all of their leverage for a single trade. It’s similar to playing a poker game and going all-in with money you don’t exactly have. You could make more money than you came in with, although you probably won’t, especially if you’re still learning to trade. 

Using the best leverage for your account is something to research, depending on the amount of money in your balance. Leverage is granted to swing traders, but using too much of your leverage is risky and should be avoided unless you are an experienced trader. 

Is Swing Trading Right for You?

Swing trading and day trading have similar ideals. You have day trading, which requires a considerable chunk of time out of your day and swing trading, which requires less. 

Swing trading is right for you if you’re looking for something more accessible that requires much less time. Day trading is more challenging than swing trading because you have less time to make decisions. Profit, however, is more significant with day trading.

As a swing trader, you can earn money; however, the more significant gains are in day trading. Swing trading is excellent for beginner traders who are still learning and have a regular job to attend during weekdays. 

The right choice would depend on your circumstances. If you have enough time to dedicate to day trading and enjoy the rush of the highs and lows in one day, then day trading might be best for you; however, if you don’t want to spend nine hours a day in front of a screen and feel that you’re still learning, swing trading would probably be best for you. 

What Is the Best Strategy for Swing Trading?

With any money-making concept, strategies are essential to learning and making a profit. You wouldn’t want to dive into something without a plan, and swing trading is no different. Before taking the plunge and using your leverage to make money, you should learn a few helpful strategies for swing trading. 

Momentum shift strategies are relatively common in the swing trading world. Momentum shift strategies are consistent and predictable; however, there’s only a short window of time. Using this can be a good beginner strategy and not as risky as others.

The best strategies for swing trading include momentum shift strategies and the 50-day bounce. The 50-day bounce is easier to plan and occurs more frequently than other strategies — it’s a way to profit from short-term corrections.

These strategies can help you gain more money than you lose, making the risk for swing trading a little less significant. Here’s a YouTube video that explains these two concepts in more detail:

Is Swing Trading Easy?

While swing trading is a great starting point for beginners that want to get in the loop of trading, it’s still a challenging concept to learn and grasp. There’s a lot of information to take in, especially if you’re jumping into the world of trading without much knowledge or experience. There’s data, analysis, learning — and the process can be off-putting to new traders, especially if they lose money early on.

Swing trading is not easy, but it’s a great place to start. This type of trading requires countless hours of learning, analysis, and data tracking. It can be hard to get into, and many beginners find that they lose a lot before they make a profit.

In addition to the challenges newcomers face with learning the ins and outs of swing trading, there are far more seasoned traders than new traders. This in itself can feel daunting to new traders; however, if you are willing to put in the time, effort, and dedication to learn about swing trading, it can be very beneficial in the long term.

As you become more familiar with swing trading, your experience increases — and with experience comes more leverage, commissions, and information. With that, new traders are always swarming to make a profit from swing trading, and this is not always a good thing for newbies.

Some brokers use newcomers as their source of income, so be mindful. Watch out for brokers that offer too much leverage early on. That can be a real red flag in the trading world of stocks — they’re likely looking to make your losses their gains.

Conclusion 

Swing trading is more manageable than day trading and requires less time, but you should still research what’s best for you before deciding how much leverage you wish to use on an asset. 

This type of trading is excellent for beginner traders, and it can be a wonderful learning experience. It can provide less money loss while still allowing the trade to become enjoyable for someone who finds trading excitable. 

However, it isn’t for everyone, and an investor may find that day trading is better for a long-term career than just a side hobby that makes money.

  1. Leveraged investing strategies – Know the risks before using these advanced investment tools. (2021, June 10). SEC.gov. https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_leveragedinvesting
  2. Margin rules for day trading. (n.d.). Investor.gov. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/margin
  3. Bassal, O. (2021, December 12). Dummies. dummies – Learning Made Easy. https://www.dummies.com/article/business-careers-money/personal-finance/investing/investment-vehicles/stocks/10-simple-rules-for-swing-trading-263774
  4. Majaski, C. (2021, June 28). The difference between day trading and swing trading. Investopedia. https://www.investopedia.com/articles/active-trading/052815/pros-cons-day-trading-vs-swing-trading.asp
  5. Stock trading vs. buy and hold. (n.d.). A vibrant market is at its best when it works for everyone. | FINRA.org. https://www.finra.org/investors/learn-to-invest/types-investments/stocks/trading-vs-buy-and-hold

 

Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.

Welcome To TradeVeda
Welcome To TradeVeda

Navdeep Singh

Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes.

Recent Posts