F&O trading is all the rage in India right now. A closer look at the trading figures in this segment reveals that the monthly F&O turnover grew by over 3,800% in 5 years — from Rs. 217 trillion in March 2019 to Rs. 8,470 trillion in March 2024. Retail investors are drawn into this segment by the possibility of booking quick profits. While that is theoretically achievable, beginners in the F&O segment often lack the experience and expertise required to succeed in such a dynamic market.
It’s no surprise that the vast majority of retail participants in the F&O segment are losing money. In FY22, around 90% of active retail F&O traders incurred losses in the derivatives segment, with the total losses amounting to a whopping $5.4 billion. When we get into the details of the numbers, it turns out that close to 85% of young options traders lose money during the first year. An analysis of trading accounts also found that more than 70% of beginner traders suffer losses — primarily because they have no formal trading knowledge and lack adequate risk management strategies.
Given the overall grim reality for retail participants in this segment, the need of the hour is an alternative strategy that can help traders pursue their goal of earning quick gains without posing complex challenges like F&O trading.
Nilesh Sharma, ED & President of Samco Securities Limited, suggests swing trading as an effective alternative trading strategy for traders. Speaking of the nuances of swing trading and how it may be a more suitable option for beginners, Sharma explains,
“Swing trading offers a middle ground between the high-risk, high-stakes world of F&O trading and the slower pace of traditional investing. It allows traders to capitalise on short-term and medium-term price movements without the complexities and leveraged risks inherent in options trading.
For newcomers to the market, it’s crucial to understand that options trading requires a deep understanding of market mechanics, pricing models and risk management strategies. Without this foundation, traders can quickly find themselves in over their heads. It is for this reason that beginners are advised to start with cash equity trading, where the risks are more straightforward and the learning curve is less steep. As traders gain experience and develop a solid understanding of market dynamics, they can gradually transition into swing trading strategies. With more experience, they can then branch out into F&O trading.”
The approach outlined by Sharma allows traders to build their skills, refine their strategies, and most importantly, learn to manage risk effectively. Only after mastering these fundamentals should traders consider venturing into options trading. The goal is to ensure that when traders do enter the options market, they do so with the knowledge and experience needed to navigate its complexities successfully.
Swing Trading Guide: Decoding How This Strategy Works
Swing trading is a beginner-friendly strategy that aims to capture price movements over the short term and medium term in stocks and securities, typically over a few days or weeks. This approach allows traders to potentially profit from market fluctuations — while simultaneously avoiding the stress of day trading and the responsibility of extended holding periods typical to long-term investing.
A simple yet effective swing trading strategy involves identifying stocks that have broken out of a consolidation phase and reached a new 52-week high. Such breakouts often signal strong momentum that can lead to further price increases. For example, a trader might scan for stocks that have been trading in a narrow range for several weeks and suddenly break above this range with increased volume.
Nilesh Sharma explains how a handy feature in the Samco trading app can be incredibly useful to any user who wants to excel at swing trading:
“To confirm these breakouts and enhance the strategy's effectiveness, traders can utilise tools like the OI (Open Interest) screener available on the Samco trading app. This feature helps identify stocks that are currently in focus and experiencing significant trading activity, potentially validating the breakout signal.
Once a promising stock is identified using the screener on the Samco trading app, a swing trader can initiate a position, set a stop-loss to manage risk and choose a target price for taking profits. As the trade progresses, these levels can be adjusted based on the stock's performance and overall market conditions.”
This approach enables traders to make the most of strong market moves while maintaining a balanced risk profile, making it an attractive option for those looking to graduate from basic investing to more active trading strategies.
Top Reasons to Adopt Swing Trading Strategies
Swing trading can be an easier alternative to intraday trading and F&O trading for various reasons. This is particularly true for beginners and for traders with limited time and/or expertise. Here are the top reasons to adopt swing trading strategies.
● Lower Risk Profile
Compared to more aggressive trading styles, swing trading has a lower risk profile as positions are held for a few days or weeks. This approach reduces the pressure associated with constant monitoring and split-second decisions. It also allows traders to analyse, think, and make informed decisions without being glued to their screens. By dealing with actual stocks rather than complex financial instruments, swing traders can participate in market movements while maintaining a more balanced risk exposure. This method provides an opportunity to capitalise on market trends without the stress associated with high-frequency trading.
● More Manageable Time Commitments
The time commitment required for swing trading can also be more manageable for traders. It allows traders to analyse and plan outside of market hours because the time horizon is longer than one trading day, as seen in intraday traders. Furthermore, it is also possible to place orders before the market opens. Swing trading also requires a more relaxed approach that can be integrated into various lifestyles without requiring constant market watch. Traders also need to only check their positions once or twice during the day, making it suitable for those with other commitments. This flexibility is ideal for busy professionals or individuals who cannot dedicate full days to trading.
● Clear Entry and Exit Points
Swing trading often relies on technical analysis, which can provide clear signals for entry and exit points. Traders can look for specific patterns or breakouts, such as a stock reaching a new 52-week high after a consolidation period or a Golden Cross formation. These signals are generally easier to identify and understand compared to the complex calculations required in other trading styles. Tools like the open interest screener available in the Samco trading app can further help confirm these signals. This clarity can, in turn, enhance a trader's confidence in their strategy and improve adherence to their trading plan.
● Higher Potential for Consistent Profits
While no trading style guarantees profits, swing trading typically offers a more balanced approach to market participation. This is because, with patience and discipline, traders can attempt to capture portions of larger price movements, which could lead to substantial gains. Unlike day trading, which often involves seeking small profits, or long-term investing with its extended waiting periods, swing trading strikes an optimal middle ground. It focuses on achieving consistent and moderate gains that can accumulate over time, rather than aiming for dramatic profits on every trade.
Improve Your Swing Trading Strategy with the Samco Trading App
The Samco trading app can help traders improve their swing trading strategies with useful and timely insights about the market. In addition to open interest data and a volley of other crucial technical indicators, this app from Samco Securities Limited also offers information about the hidden insights or the Andekha Sach in every user’s past trades. The result? Traders can learn from their past mistakes and improve future trades effectively.
About SAMCO Securities
SAMCO Securities was incorporated by Mr Jimeet Modi, Founder & CEO of SAMCO Group in 2015. As the country’s leading flat-fee brokerage and wealth-tech platform, SAMCO Securities provides retail investors access to sophisticated financial technology and makes their wealth-creation journey simple, informed, and cost-effective. SAMCO Securities' mission is to eliminate the existing challenges faced by traders and investors and democratise access to the wealth management process for every Indian. With customer centricity at SAMCO’s core, we implement a quantitative approach to provide differentiated solutions that empower our customers in acing the capital markets.
SAMCO Securities is pioneering the stock market trading by introducing industry-first features like My Trade Story, Personal Index and Trade Spread Sheet to name a few under its CRP strategy.