Swing trading is a medium-term form of trading based on taking advantage of predicted price movements over days to weeks. More sedate than day trading, yet more intense than position trading, it can be a good starting point for beginners wanting to learn the whims of the markets.
Typically, though, any form of trading executed without strategy is set to fail from the outset. Instead, you must have a strong understanding of swing trading strategies and indicators that can be used to trade crypto, forex, stocks – whichever asset class you want to focus your positions on. In this guide, we explore some of the best available so you can become a better trader.
Swing trading strategies and indicators are approaches to opening and closing positions which help traders improve their discipline and success. Strategies can:
As such, whether you're a new or experienced swing trader, strategies are a must. Indicators, on the other hand, are used to inform trades. They typically encompass technical indicators like charting methods, Learn more about swing trading below. Learn to swing trade
With the strategies and indicators below, you can approach swing trading from a more objective position. Some aren't exclusive to swing trading or a particular asset class like stocks, crypto or forex, so always do your research and exercise care when using them.
This strategy for range markets involves identifying the base level of price support, and corresponding price resistance level for your chosen security.
Often, a price will zig-zag up and down between these two levels for some time, particularly if the asset is not due to be affected by any economic data releases which might cause price breakouts.
By understanding these two limits and the typical timings of price movement between them, you can open positions with a greater degree of confidence. You can then close them in the run-up to likely resistance before your profits are eroded by the next movement of the oscillation.
A chart-pattern-based swing trading indicator, cup and handle can be a sign that the price of a security is about to enter bullish territory.
A cup and handle pattern resembles its namesake. Price will slowly and slightly chart downwards, then slowly chart up, before going down again, levelling off at a more horizontal angle.
Essentially, it shows that investors are selling as the price reaches previous resistance levels and that there is support from new investors for a higher level. This can be a good time to open a long position.
When identifying cup and handles, look for long and shallow U-shaped patterns, not deep Vs, with handles towards the top of the U.
This strategy is based on technical analysis using the Fibonacci ratio sequence (23.6%, 38.2%, 50%, 61.8%, 78.6%, 100% and so forth). It aims to identify pullbacks (retracements) and trends (extensions) in price, which you can use to identify future price movements.
Traders combine the percentage levels above with other forms of analysis like historical trend analysis and fundamental analysis to open and close positions. Using the indicator alone can expose you to random and potentially loss-making price movement.
It's important to note that the reasoning for the use of Fibonacci in trading is purely due to the sequence's prevalence throughout nature (it tracks to the shape of seeds and fruit, the way rabbit populations increase over time, and so forth). Due to this, some traders believe it has a predictive effect on markets too.
This straightforward swing trade strategy involves checking price charts to work out what the long-term price trend is for a security.
Traders often expect there to be small peaks and troughs at the start of a trend, which grow steadily more volatile as time goes on. Countertrends may occur in the middle of a trend; towards the end of the trend line, swings are severe and more unpredictable.
With this approach, some traders find that identifying these countertrends, which are often weaker than large historical pullbacks, can be good times to open positions. Once the trend resumes, they can take profit when it suits them.
Countertrend trading can also be used, but due to the nature of countertrends, this is a much shorter-term method.
By basing your swing trading strategy on moving average indicators for contrasting periods (10 periods versus 40 periods, for example), you can identify inflection points when the shorter-period average goes above or below the longer.
When the shorter crosses above the longer, traders may believe this shows that the price is experiencing upward momentum, necessitating the opening of long positions. The opposite is true when it passes below the longer-period trend line – this is often interpreted as a marker of bearish activity.
While moving averages can help you understand trend movement, the nature of the shorter-period average means it will lag behind the trend.
While the swing trade strategies and indicators above are a great starting point, it's important to tailor your approach to your personal requirements and generally boost your understanding. Consider these five tips to help hone yours:
1. Set a profit goal: Aiming for 'as much profit as possible' is a surefire way to set yourself up for a loss. Instead, aim for 5-15% profit on each trade (depending on your risk appetite) and stick to it, setting profit orders to hem in greed. That way, you can take smaller profits more often and compound gains over time.
2. Set a stop-loss: Stop-loss orders are used to close your position when losses reach a certain point. Set yours at a 3:1 profit-loss ratio to prevent large losses from wiping out weeks of gains. For instance, if you aim for 12% profit, set your stop-loss at -4%.
3. Understand your asset: It might seem obvious, but many traders open positions on securities they know little or nothing about. Being able to predict the market is complex and difficult, but you'll be better prepared to take advantage of opportunities as they arise with more fundamental and historical understanding.
4. Know the calendar: From forex to stocks, most securities are impacted by economic news, reports and data releases. These can have a big impact on prices but are often planned, so understanding when they're going to happen can give your strategy the edge.
5. Factor in fees: While it might seem a good idea to keep a position open for as long as it takes for markets to turn your way, it will be hit each day by overnight trading fees. These can eat into your profits, so account for them when deciding when to close your position.
You can make better, well-informed, well-executed and, ultimately, more successful swing trades with Tradu. Our winning range of swing trading strategy resources and free trading accounts give you everything you need to get clued up on swing trading and trade more effectively.
Whether you've got your eye on swing trading crypto, forex, stocks or indices, get started today.
Swing trading vs. Trend trading
You should not regard any suggested trading strategies as investment recommendations or advice. You must rely on your own judgment for any investment decision you make in relation to your Account.