Swing Trading Systems

Swing trading systems offer many advantages over day trading systems. Let's discuss swing trading systems and their positive and negative points.

Because they hold positions for several days to several weeks, they can allow great trades to come to full fruition before exiting them. This means that you can capture more of the market action than a day trading system can. This is very important because many great trades take weeks or days to develop.

In addition to being better at catching large market movements, swing trading systems typically have less transaction costs. This is because they trade less often, and therefore, their average profit per trade is generally much greater. This not only increases profits, but reduces the effects of slippage and commissions on their returns.

This reduction in the effects of slippage and commssions is crucial to a trader that wants to have his futures trading system traded by a broker for him. If a broker is trading a system for a client, the broker usually charges a larger commission for offering this service, and because we aren't trading as often these increased commissions have little effect on the profitability of the system.

The flip-side of the coin is that swing trading systems have drawbacks as well. Compared to long-term systems, they have more transaction costs and don't do as well in capturing very long-term trends as well as systems built to trade long-term.

Because swing systems hold positions overnight, they require higher margin deposits compared to day trading systems. This is because many futures brokers offer quite low day trading margin rates, but after the closing bell, the margin requirements revert back to the exchange-set minimums.

Since they hold positions overnight, they also expose the trader to more risk. This increased risk comes from price fluctuations that can happen overnight, or early in the morning, and these can cause large fluctuations in futures prices the next day when the trading session opens. This is especially true for futures based on commodities such as grains, where news of crop failures can send prices skyrocketing in just a few hours.

Unlike long-term timeframe systems, swing systems do offer the trader the ability to reallocate his portfolio rather quickly. This is especially helpful when the trader sees an opportunity in another market emerge and desires to enter that market in the short-term.

When considering everything, swing trading systems likely give the best balance of risk to return for many traders compared to day trading and long-term futures trading systems. They give the ability to catch significant market swings, less transaction costs, and react to new market opportunities quickly.

Need futures trading systems? Midas Trading Systems provides dozens of futures trading systems.