I will take it a step further in a future article to discuss ways to break down those long-term swings.
What the data says
Before I go any further, there is a very small amount of available data on swing trades. It’s basically just a lot of raw data from various traders. I have pulled some interesting data from the historical chart of the top 60 swing traders. We can see there are very few active traders, with only 17 active traders between 2011 and 2016. On the other hand, I did find a few swing traders in between 2011 and 2016 that traded during the recession. We can see that there are traders active from 2003 to 2012 that traded during the housing collapse. So from these examples you can tell the swing trader data is not good data at all when you look at the daily turnover of the most active traders. However as we are talking about long-term trades I am going to make an exception.
The swing trader data is actually pretty good. It’s actually a combination of a lot of data and it is also somewhat limited in its coverage. It’s a bit of a wash as to where you find swing traders as they tend to trade mainly on Monday evenings when people are less likely to be looking at the trading markets when you are. The data is also limited but it is a fairly large data set and I have collected it from over 20 different exchanges.
Why do swing traders trade?
I believe that there are two main reasons swing trades happen. The first is that they can be just as profitable as profit trading. We all love finding better way to make a profit if we can. You may have a friend who has a nice position, you make a few dollars on their trade, and then you sell it off to a friend to make money. We have many examples of that. Many of us will even call it trading! The second reason swing trades are as profitable is because they help hedge volatility. Traders are very much concerned about volatility. It’s pretty much a universal problem in the hedge fund industry. If you are not buying and holding at a reasonable price when volatility moves through the market then you risk taking your price down. When volatility rises you have a lot of work to do to reduce volatility as you only have a limited amount of time when you can trade in a safe environment. If you do not protect yourself well then your return is very likely to be quite poor. Many investors would say this is just another risk in the portfolio but swing traders