Here you will learn the fundamentals of swing trading as well as five of the most effective swing trading techniques and strategies.
What is Swing Trading, and How Does it Work?
Swing trading is a form of trading strategy that focuses on profiting from changing price movements over short time-frames.
Swing traders aim to profit from price fluctuations in the stock market.
Positions are usually held for one to six days, but some may be held for several weeks if the trade is profitable.
Swing traders use a number of technical indicators to detect trends, trend direction, and possible short-term trend shifts in order to catch trading opportunities.
Swing-trading can be done using a variety of techniques. We’ve shown a swing trade based on trading signals in above example.
The trade entry point (A), exit point (C), and stop loss (B) are the three most important points on the chart. These three main components should be included in every swing trading practice.
The stop loss and exit points don’t have to stay at a fixed price because they’ll be activated when a certain technical set-up happens, which can vary depending on the swing trading strategy you’re using.
It’s important to understand the standard timeframe (1 hr or more) in which swing trades take place so that you can accurately track your trades and maximize your profit potential.
Table of Contents
- What is Swing Trading, and How Does it Work?
- 5 Swing Trading Strategies That Can be Applied to Any Stock
5 Swing Trading Strategies That Can be Applied to Any Stock
Below are five swing trading strategies that you can use to spot trading opportunities and monitor your trades from beginning to end.
To find potential trade entry points, apply these swing trading strategies to the stocks you’re most interested in.
1. The Fibonacci Retracement
The Fibonacci retracement can be used to help traders spot support and resistance levels on stock charts, as well as potential reversal levels.
Plotting horizontal lines on a stock chart at the classic Fibonacci ratios of 23.6 percent, 38.2 percent, and 61.8 percent will show possible reversal levels.
Even if it does not suit the Fibonacci pattern, traders often look at the 50% level because stocks sometimes reverse after retracing half of the previous move.
2. Support and Resistance Levels
You may develop a good swing trading strategy around support and resistance levels, which are the key elements of technical analysis.
A support level on the chart is a price level, where buying demand is high enough to outweigh selling pressure.
As a result, the decline in price action is reversed, and the price begins to rise again.
On the bounce off the support line, a stock swing trader will look to enter a buy trade with a stop loss below the support line.
The opposite of support is Resistance.
Resistance signifies a price level above the current market price where selling pressure can outweigh buying pressure, causing the price to reverse its upward trend.
A swing trader could enter a sell position on the bounce off the resistance level in this situation, with a stop loss placed above the resistance line.
When it comes to integrating support and resistance into your swing trading scheme, it’s important to note that when price breaches a support or resistance level, the support or resistance level switches roles – what was once a support becomes a resistance, and vice versa.
3. Channel Trading
To use this swing trading strategy, you must first find a stock that is showing a strong trend and trading within a channel.
When the price bounces down off the top line of a channel drawn around a bearish pattern on a stock map, you should consider opening a sell spot.
It’s important to trade with the trend when using channels to swing-trade stocks, so in this case, where price is in a downtrend, you’d just look for sell positions until the price breaks out of the channel, heading higher and signaling a reversal and the start of an uptrend.
4. 10 & 20 Day Simple Moving Averages
Simple moving averages are yet another popular swing trading technique (SMAs).
SMAs smooth out price data by calculating an average price that is updated on a regular basis and can be applied to a variety of time periods. A 10-day SMA, for example, adds up the daily closing prices for the previous 10 days and divides by 10 to get a new average every day.
You add two SMAs (10 & 20 period simple moving averages) to your stock chart.
A buy signal is created when the shorter SMA (10) crosses above the longer SMA (20), indicating that an uptrend is ongoing.
A sell signal is created when the shorter SMA (10) crosses below the longer-term SMA (20), as this form of SMA crossover indicates a downward move.
5. MACD Crossover on Longer Period Chart
The MACD crossover, this swing trading strategy is an easy way to spot market swing and trading opportunities.
One of the most widely used swing trading methods for determining trend direction and reversals is the MACD Crossover.
The MACD is made up of two moving averages – the MACD line and the signal line – and when these two lines cross, buy and sell signals are produced.
A bullish pattern is suggested when the MACD line crosses above the signal line, and you can consider entering a buy trade.
A bearish trend is likely if the MACD line crosses below the signal line, indicating a sell trade.
A swing trader must wait for the two lines to cross again, providing a signal for a trade in the opposite direction.
All of these approaches can be used in your trading to help you find trading opportunities in the markets.
All five of the indicators and drawing tools used to implement the above strategies, as well as many other technical indicators and studies, are available on the advanced charts on any charting platform.