How to swing-trade: 5 effective strategies

swing trade

Learn swing trading basics and gain valuable insights into five of the most popular swing trading techniques and strategies. View an example illustrating how to swing-trade and find out how you can identify trade entry and exit points. 

What is swing trading?

Swing trading is a type of trading style that focuses on profiting off changing trends in price action over relatively short timeframes. Swing traders will try to capture upswings and downswings in stock and forex prices. Positions are typically held for one to six days, although some may last as long as a few weeks if the trade remains profitable. Traders who swing-trade find trading opportunities using a variety of forex indicators to identify patterns, trend direction and potential short-term changes in trend. 

Swing trading involves entering just after a trend reverses briefly, then resumes. You enter just as price is pushing or “swinging” past its former resistance, which indicates that the trend has found new strength. Your technical analysis will need to focus not only on support and resistance points but also on:

  • Momentum indicators that either telegraph a possible coming trend reversal or confirm it.
  • Timing or wave indicators like Elliott Wave, Fibonacci, or Gann style analysis 


Again, swing trading is a trading methodology that seeks to capture a swing (or “one move”). The idea is to endure as “little pain” as possible by exiting your trades before the opposing pressure comes in. This means you’ll book your profits before the market reverse and wipe out your gains.

Here’s a visual example to better understand what is swing trade:

swing trade

Next, here are the pros & cons of swing trading…

Pros:

  • You need not spend hours in front of your monitor because your trades last for days or even weeks
  • It’s suitable for those with a full-time job
  • Less stress compared to day trading


Cons:

  • You won’t be able to ride trends
  • You have overnight risk


So far so good? Then let’s move on…or start swing trading with a FREE $20 welcome bonus. Use code WELCOME20 at registration.

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Five swing trading strategies that work

We've summarised five swing trade strategies below that you can use to identify trading opportunities and manage your trades from start to finish. Apply these swing trading techniques to the stocks or forex pairs you're most interested in to look for possible trade entry points. You can also use tools such as MetaTrader 5 platform to help you identify currency pairs and stocks that are showing potential technical trading signals. 

1 – Fibonacci retracement

The Fibonacci retracement pattern can be used to help traders identify support and resistance levels, and therefore possible reversal levels on stock charts. Stocks often tend to retrace a certain percentage within a trend before reversing again, and plotting horizontal lines at the classic Fibonacci ratios of 23.6%, 38.2% and 61.8% on a stock chart can reveal potential reversal levels. Traders often look at the 50% level as well, even though it does not fit the Fibonacci pattern, because price tends to reverse after retracing half of the previous move. 

A swing trader could enter a short-term sell position if price in a downtrend retraces to and bounces off the 61.8% retracement level (acting as a resistance level), with the aim to exit the sell position for a profit when price drops down to and bounces off the 23.6% Fibonacci line (acting as a support level).

2 – Support and resistance triggers

Support and resistance levels represent the cornerstone of technical analysis and you can build a successful stock swing trading strategy around them. 

A support level indicates a price level or area on the chart below the current market price where buying is strong enough to overcome selling pressure. As a result, a decline in price is halted and price turns back up again. A stock swing trader would look to enter a buy trade on the bounce off the support line, placing a stop loss below the support line.

Resistance is the opposite of support. It represents a price level or area above the current market price where selling pressure may overcome buying pressure, causing the price to turn back down against an uptrend. In this case, a swing trader could enter a sell position on the bounce off the resistance level, placing a stop loss above the resistance line. A key thing to remember when it comes to incorporating support and resistance into your swing trading system is that when price breaches a support or resistance level, they switch roles – what was once a support becomes a resistance, and vice versa. 

3 – Trendline trading

This swing trading strategy requires that you identify a market that's displaying a strong trend and is trading within a trendline. If you have plotted a trendline or even a channel around a bearish trend on a candlestick chart or bar chart, you would consider opening a sell position when the price bounces down off the trendline or top line of the channel. When using trendlines or channels to swing-trade it's important to trade with the trend, so in this example where the price is in a downtrend, you would only look for sell positions – unless price breaks out of the trendline or channel, moving higher and indicating a reversal and the beginning of an uptrend. 

>> Read also: Where the fortunes are made: identifying a trend reversal in 3 steps

4 - Moving Average Crossover 

Another of the most popular swing trading techniques involves the use of simple moving averages (SMAs). SMAs smooth out price data by calculating a constantly updating average price which can be taken over a range of specific time periods, or lengths. For example, a 10-day SMA adds up the daily closing prices for the last 10 days and divides by 10 to calculate a new average each day. Each average is connected to the next to create a smooth line which helps to cut out the 'noise' on a price chart. The length used (10 in this case) can be applied to any chart interval, from one minute to weekly. SMAs with short lengths react more quickly to price changes than those with longer timeframes.

With the 10- and 20-day SMA swing trading system you apply two SMAs of these lengths to your forex chart. When the shorter SMA (10) crosses above the longer SMA (20) a buy signal is generated as this indicates that an uptrend is underway. When the shorter SMA crosses below the longer-term SMA, a sell signal is generated as this type of SMA crossover indicates a downtrend.  

5 – MACD crossover 

The MACD crossover swing trading system provides a simple way to identify opportunities to swing-trade stocks. It's one of the most popular swing trading indicators used to determine trend direction and reversals. The MACD consists of two moving averages – the MACD line and signal line – and buy and sell signals are generated when these two lines cross. If the MACD line crosses above the signal line a bullish trend is indicated and you would consider entering a buy trade. If the MACD line crosses below the signal line a bearish trend is likely, suggesting a sell trade. A swing trader would then wait for the two lines to cross again, creating a signal for a trade in the opposite direction, before they exit the trade. 

The MACD oscillates around a zero line and trade signals are also generated when the MACD crosses above the zero line (buy signal) or below it (sell signal).

Swing Trade with $10,000 in Virtual Cash

Put your swing trade skills to the test with our FREE Stock Simulator. Compete with thousands of swing traders and trade your way to the top! Submit swing trades in a virtual environment before you start risking your own money. Practice swing trading strategies so that when you're ready to enter the real market, you've had the practice you need. 

All of these trading strategies can be applied to your trading to help you identify trading opportunities in the markets you're most interested in. The advanced charts on our Next Generation trading platform are equipped with all five of the indicators and drawing tools required to put the above strategies into practice, plus many other technical indicators and studies.

Alternatively, use an Expert Advisor Generator and create automated swing trading strategies (Forex Robots or Forex EAs) with a few clicks, without writing codes.

>> Let's Get You Started!

 

 

Categories:  Education