Technical traders love trend and swing trading. What works better? The answer is of course trend trading. But why?
The driving force of swing trading is some form of exaggeration. The price is overshooting in one direction and then after finally coming to a halt the countermove begins to start, which causes similar trades. An oscillation has begun.
A trend can be born in a similar manner. Beginning with a seeding movement other momo-players are drawn in and the trend gets established. But there is a big difference. Trends often have a real fundamental reason – some force that is not only based on psychology, and that is the strong advantage of trend trading systems over swing trading methods.
Sure, sometimes a swing has also fundamental power. For instance, news could drive a price for the time being and then this activating piece of information somehow gets invalid, reverted or overridden by other news. The outcome may be a crystal clear swinging move that could be catched with an oscillator trading system .
The problem for swing traders is, such a counteracting piece of news is hardly foreseeable. Fortunately for the trend trader, the reason behind a trend has often staying power. One of the best examples here is of course the growth stock. Earnings that are marching up do this often for a remarkable long period of time.
Another good example is breaking news. Something that is really new and which gets not digested immediately and only understood over time. This is often the start of a sharp, strong and enduring trend.
As for a conclusion, trend traders may have to wait longer, but swing traders get easier trapped by a random formation that only looks like a nice down- and upswing.
