To be a successful trader, you need reliable and accurate data that can be processed and acted upon quickly. Japanese Candlesticks have become the industry standard because they are easier to learn and interpret in comparison to bar charts, for example. Whether you are interested in the stock market, Forex market, or some other market, candlestick patters lead to a form of technical analysis whereby market turning points can be discerned.
What is the Bullish Engulfing Pattern?
Introduction to Candlesticks
Before we can discuss candlestick technical analysis, it is imperative for a trader to understand how to read a candlestick chart. Unlike traditional line charts, candlesticks provide more insight. Developed centuries ago in Japan to help traders navigate the rice market, candlesticks are comprised of five parts: the open, the close, the high, the low, and the body which indicates direction by virtue of its color. If the open is lower than the close, the candle body will be green or clear, indicating the asset was bullish for that particular time frame. If the open was higher than the close, the body would be red or black, indicating a bearish time frame. Above and below the candle’s body will be what looks like a wick. The top of the top wick indicates the high of that time period. The bottom of the bottom wick indicates the low.
What Does a Swing Trader Do?
Swing trading is a technique used by at-home traders to exploit short-term price action in stocks. By short-term, we do not mean just within a day. People who trade in and out of stocks and close out of their positions at the end of the day are called day traders. Swing traders, on the other hand, always hold their stocks for at least two whole days. Swing traders can hang onto their stocks for as long as six weeks before they sell out of their positions entirely.
The Difference Between Day Trading and Swing Trading
Admit it. You’ve seen the price of a stock fluctuate hundreds of dollars in a single day and thought to yourself, “I should be trading stocks. I could make a killing.” We’ve all been seduced into the tempting, high risk, high reward world of short-term stock market trading. Unlike Warren Buffet and other investors who allow the stocks in their portfolios to ride out boom and bust cycles that can last for years, short-term traders risk their investments on minute fluctuations in the stock market. They ride the little ripples of ups and downs that occur every single day, and they profit (or lose) massive sums of money in the blink of an eye.
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Swing Trading vs. Long-Term Investing
There are many different ways to play the financial markets. Swing trading is when you would hold an asset for a little longer than a day, but less than long-term investing which involves holding an asset for longer durations. Which method is preferable depends largely on myriad variables including such things as tolerance to risk. If you are a conservative investor and have the luxury of time on you side, it may be preferable to hold onto an investment for years, if not decades, to maximize profit while minimizing risk. If you are a more experienced investor and enjoy the thrill of the game as much as making money, swing trading may be more your speed. This article will explore the pros and cons of each of these investing styles in order for the trader/investor to discover which strategy is best for them.