Understanding Swing Trading Strategies

Swing Trading Strategy - How to Master the Arts and Science of Swing Trading

You can learn swing trading after you've explored the many stock trading options. Swing trading, which involves traders making trading decisions based on technical analysis, is one of the most well-known trading styles. We will be looking at the most popular swing trading strategies used by traders to find winning deals on the market.

Before we get into the merits and disadvantages of various swing trading strategies, let's briefly recap what swing trading actually is.

What's swing trading?

Swing traders attempt to profit quickly from asset price changes. They would use technical and fundamental analysis to determine trends and patterns and the potential for a change in trend.

Swing traders are only invested for a brief time, sometimes days or weeks, before making a deal. Although they don't track market trends as frequently as day traders, swing traders are quick to spot shifts in the trend line before it changes and exit the market. Swing trading is a way they achieve this.

What is a Swing Trading Strategy?

Swing trading is a method that attempts to profit from price swings or oscillations, either upwards or downwards. Swing traders can use a variety of technical trading tools such as day traders but only for a short period.

To form strategies, swing traders use popular trading tools such as Bollinger Bands and Fibonacci Retracement. Trades also monitor emerging patterns on multi-day charts such as,

1. Pattern for the head and shoulders

2. Flag pattern

3. Cup and handle pattern

4. Triangle pattern

5. Moving Average Crossover

Let's look at some simple swing trading strategies.

Fibonacci retracement: Swing traders know that stocks can retrace at different levels before reversed again. Fibonacci Retracement lines are used to help traders determine support and resistance levels. To identify possible reversal points, traders draw horizontal lines at different percentages, such as 23.6 percent, 38.2 percent, and 61.8%. A trader might plan a short trade at 61.8 Fibonacci, which acts as a resistance level. This is where the price will retrace and bounce off. The trader should exit when it reaches 23.6 Fibonacci or the support level.

Support & Resistance: The two most important indicators for traders who follow the trend are support and resistance lines. Resistance is the ceiling and support is the lowest level in a trading range. The asset price moves within the range. However, if it crosses the support level or the resistance level it signals a reversal. A price above the resistance level may be considered an overbought condition. This could indicate that the buying pressure will decrease and the selling forces will prevail. Overselling also occurs below the support level. Swing traders will place stop-loss levels just above the resistance line in order to enter a selling position if the price bounces off the resistance.

Bollinger Bands: Bollinger Bands are price bands that are placed on either side of a trend line. This creates a range in which asset prices can move. Bollinger Bands are used by swing traders to plan entry points and exit points.

Let's look at an example. We will be looking at a Bollinger Bands sell trade. Trader would begin by looking for the asset price moving near the upper Bollinger Band before it retraces or breaks below that Bollinger Band. This is a strong bearish candle and closes at the lower BB line. Swing traders will place a position once the confirmation candle has formed. This is a strong bearish candle that breaks below the middle line of the BB, which indicates the presence of real sellers. This allows traders to place an extra stop-loss above the breakout candle. Trader's can eliminate the possibility of false trend reversal signals by placing a protective SL. The trader will now wait for the price movement to determine if the price should move back towards the middle BB line before placing the trade. Here they plan an exit profit.

Do you find it difficult to understand? Take a look at the image below to get a better understanding.

channel trading: channel trading is a straightforward method that involves trading assets with a strong trend line, and trading within a specific channel. You might plan a sell if the trend line crosses the channel's upper limit and falls before it bounces off.

Channel trading is a tool that allows traders to trade in tandem with trend signals.

Using the SMA: Another popular method for swing trading is to use the simple moving average line (SMA). Each data point in the SMA represents an asset's average price. Smoothen out the noise with SMAs for 10 and 20-days.

On a trading chart, the trader will compare the SMA lines. Trades are initiated when the shorter SMA crosses over the longer SMA (20 day), which signals an uptrend. In the opposite direction, a sell signal is triggered when the longer SMA crosses over the shorter SMA.

Crossover: A MACD is composed of two average lines, the signal line and MACD. When the lines cross, it generates trading signals. If there is a bullish trend, MACD will move over the signal line and trigger a buy signal.

If the MACD line drops below the signal line, the trend will turn bearish. This indicates selling opportunities. MACD crossover is a popular technique for swing trading.

We have already discussed some of the most popular swing trading methods. There is more. You must also know how to manage your trade. There are two ways to do this.

1. Management of passive trade

2. Trade management

Passive traders will wait until the market reaches the stop loss or profit target, and ignore any movement between.

As the name implies, an active trader will be able to monitor market movements and decide their next move.

What are the Advantages of Using Swing Trading Strategies.

1. Swing trading can lead to higher profits and lower losses. These strategies allow traders to focus on larger trades and reduce intraday trading noise.

2. Swing trading strategies, secondarily, are based upon technical indicators. This reduces the risk of speculations and helps you make a decision.

3. Trading strategies also have the advantage of not having to monitor the market all day.

Conclusion

Swing traders employ a variety of strategies, while more experienced traders will employ complex and advanced techniques. These simple strategies can help you build a solid foundation.

Swing trading may be your preferred style, but it doesn't matter if you are a trader or not. It is important to learn the different trading techniques in order to make more sense of the stock market. Knowledge is the best weapon in stock trading.