Swing trading is a strategy where you choose how to position your portfolio and how to trade based on the market. Swing trading was pioneered as the method of choice among institutional traders. As such, the method allows for low-level investors to invest in complex, volatile funds which, theoretically, have little correlation with market performance.
The downside of this method are the high fees associated with the strategy, which in turn limit its effectiveness, as swing traders lack the institutional knowledge, time, and capital of more traditional traders.
The current landscape
The market has shifted substantially since the advent of swing trading, with volatility driven in large part by major shifts in demand, the effects of the Great Recession/Great Recession Crisis, and the effects of currency fluctuations. These three factors led to a shift from small cap to large cap funds, and from large cap to small cap funds. As a result, it is no longer reasonable to solely trade funds within large cap, as smaller funds can be easily picked up by those looking to move.
The market itself is also more complex now, and is much more difficult for small investors to navigate. As such, small cap trading strategies need to be able to respond quickly to changes in the market. Since these funds tend to have more volatility than large caps, many trading strategies have either been redesigned to use larger cap strategies, or have become less effective. Due to this shift in strategy, swing trading strategies have also experienced a shift in market positioning, with swing trading having become almost strictly based on market sentiment, and has been replaced by hedge fund trading strategies.
Many investors today are looking to invest in actively managed funds, rather than actively picked stocks. This means that the amount of stock to be held can be much larger than when actively managed stocks were the focus. In addition, a much greater degree of market awareness exists now, for reasons such as increased interest and competition from institutional trading, with the price of shares having a much greater impact, which in turn, results in more traders and higher trading volumes.
The market structure currently has a lot of room for swing trading, with investors looking to reduce their holdings and have access to a better selection as they move through the various strategies or fund structures available to them.
The bottom line
There is lots of opportunity for both swing traders and hedge funds to benefit from this shift in market structure. With the right strategy, you can make some very comfortable margins. Additionally, the high fees associated with most trades provide incentive
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