There are so many unfamiliar words in the trading world. In the previous article, we have discussed day trading. But have you ever heard about swing trading? And how does swing trading work? If you are wondering whether or not swing trading is permissible in Islam, then this article is for you.
What is swing trading?
First and foremost, let’s talk about its definition. Swing trading is known as a strategy to gain profit by holding the asset for several days or weeks. The trader will buy the stocks at the lower price and then will sell them at the highest price. Different from the daily traders who do the transaction in a day, swing traders tend to hold their stock longer to earn more capital gain.
Furthermore, doing swing trading is similar to other trading strategies. It also contains risks. Remember the basic principle of trading? Yes, high-risk means high return. Thus, you can not do swing trading without knowing its technique and strategy. To protect yourself from massive loss, here are some techniques for you to take into consideration:
Swing trading techniques
- Entry technique
This is a stock investment method in which you enter the market and buy stocks based on the current trend. The trend is the general direction of stock price fluctuations over time. You can identify when the most appropriate entrance with the best risk/reward possibility is by understanding the trend.
- Exit technique
The exit approach is a method for exiting a market at the appropriate time. This exit strategy is critical in ensuring that you get the most out of the stock. When you have attained the price you want or the stock price has fallen below the lowest limit you have set, you will apply this exit approach. The exit approach can help traders avoid being carried away by soaring stock prices, and it also means that they do not have to take a substantial loss when stock prices fall significantly.
Now the question is, is it halal to do swing trading?
According to Shariah, it is permissible, but there are several things you must consider:
- The stock must be halal. Make sure you buy stock from a Shariah compliant company. You have to pay attention to the company activities, whether or not the company doing unlawful activities (riba, gharar, etc)
- Make sure you avoid gharar by fully owned the stock first before you sell it.
- Do not use margin or leverage provided by the broker as you will only pay a small amount of money and not fully owned the whole stock.
In conclusion, you can do swing trading as long as there are no unlawful activities. So, please be careful and make sure what you do is halal.
To read more about Islamic Finance related topics, please click here and visit our academy.
Besides, feel free to sign up for our free stock screening services at musaffa.com.